<PAGE> 1
[AIM LOGO APPEARS HERE]
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. AGGRESSIVE GROWTH FUND
AIM V.I. BALANCED FUND
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH FUND
AIM V.I. GROWTH & INCOME FUND
AIM V.I. HIGH YIELD FUND
AIM V.I. INTERNATIONAL EQUITY FUND
AIM V.I. MONEY MARKET FUND
AIM V.I. VALUE FUND
PROSPECTUS
MAY 1, 1998
AIM V.I. AGGRESSIVE GROWTH FUND, AIM V.I. BALANCED FUND, AIM V.I.
CAPITAL APPRECIATION FUND, AIM V.I. CAPITAL DEVELOPMENT FUND, AIM
V.I. DIVERSIFIED INCOME FUND, AIM V.I. GLOBAL UTILITIES FUND, AIM
V.I. GOVERNMENT SECURITIES FUND, AIM V.I. GROWTH FUND, AIM V.I.
GROWTH AND INCOME FUND, AIM V.I. HIGH YIELD FUND, AIM V.I.
INTERNATIONAL EQUITY FUND, AIM V.I. MONEY MARKET FUND and AIM V.I.
VALUE FUND (the "Funds") are thirteen 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 the Company is 11 Greenway Plaza, Suite 100,
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 AND UP TO 100% OF THE SECURITIES IN WHICH THE AIM V.I.
HIGH YIELD 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 THESE FUNDS. 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, 1998, has been filed with the United States
Securities and Exchange Commission ("SEC") 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. The SEC maintains a Web site at http://www.sec.gov that
contains the Statement of Additional Information, material
incorporated by reference, and other information regarding the Funds.
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 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> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About the Funds........................... 2
Financial Highlights...................... 3
Performance............................... 8
Investment Objectives and Programs........ 8
Risk Factors.............................. 17
Management................................ 19
Purchase and Redemption of Shares......... 23
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Future Fund Closure....................... 24
Determination of Net Asset Value.......... 24
Dividends, Distributions and Tax
Matters................................. 25
General Information....................... 25
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. AGGRESSIVE GROWTH FUND ("AGGRESSIVE GROWTH FUND") is a diversified
portfolio which seeks to achieve long-term growth of capital by investing
primarily in common stocks, convertible bonds, convertible preferred stocks and
warrants of companies, which in the opinion of the Fund's investment advisor are
expected to achieve earnings growth over time at a rate in excess of 15% per
year.
AIM V.I. BALANCED FUND ("BALANCED FUND") is a diversified portfolio which
seeks to achieve as high a total return as possible, consistent with
preservation of capital, by investing in a broadly diversified portfolio of
high-yielding securities, including common stocks, preferred stocks, convertible
securities and bonds.
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. CAPITAL DEVELOPMENT FUND ("CAPITAL DEVELOPMENT FUND") is a
diversified portfolio which seeks long-term capital appreciation by investing
primarily in common stocks, convertible securities and bonds.
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 & 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. HIGH YIELD FUND ("HIGH YIELD FUND") is a diversified portfolio which
seeks to achieve a high level of current income by investing primarily in
publicly traded debt securities of less than investment grade.
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, AIM INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA
FAMILIA AIM DE FONDOS AND LA FAMILIA AIM DE FONDOS AND DESIGN ARE REGISTERED
SERVICE MARKS AND INVEST WITH DISCIPLINE AND AIM BANK CONNECTION ARE SERVICE
MARKS OF A I M MANAGEMENT GROUP INC.
2
<PAGE> 3
The Aggressive Growth Fund, Balanced Fund, Capital Appreciation Fund, Capital
Development Fund, Diversified Income Fund, Global Utilities Fund, Government
Fund, Growth Fund, Growth & Income Fund, High Yield Fund, International Fund,
Money Market Fund and Value Fund are separate series of shares of the Company, 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).
The Aggressive Growth Fund will discontinue sales of its shares to new
participants, as soon as reasonably practicable, when its assets reach $200
million. See "Future Fund Closure."
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the
Capital Appreciation Fund, the Diversified Income Fund, the Global Utilities
Fund, the Government Fund, the Growth Fund, the Growth & Income Fund, the
International Fund, the Money Market Fund and the Value Fund for the fiscal
years ended December 31, 1997, 1996, 1995 and January 31, 1995 and 1994. 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.
(PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
AIM V.I. CAPITAL APPRECIATION FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
-------------------------------- ------------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 19.43 $ 16.55 $ 12.05 $ 12.58 $ 10.00
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income (loss)................... 0.03 0.02 0.04 0.05 --
Net gains (losses) on securities (both realized
and unrealized).............................. 2.58 2.89 4.46 (0.54) 2.59
-------- -------- -------- ------- -------
Total from investment operations............... 2.61 2.91 4.50 (0.49) 2.59
-------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income........... (0.02) (0.03) -- (0.04) (0.01)
-------- -------- -------- ------- -------
Dividends from net realized gains.................. (0.27) -- -- -- --
-------- -------- -------- ------- -------
Total distributions................................ (0.29) (0.03) -- (0.04) (0.01)
-------- -------- -------- ------- -------
Net assets, end of period........................ $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58
======== ======== ======== ======= =======
Total return(a).................................... 13.51% 17.58% 37.38% (3.91)% 25.90%
======== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)......... $522,642 $370,063 $212,152 $88,177 $35,354
======== ======== ======== ======= =======
Ratio of expenses to average net assets.......... 0.68%(b)(c) 0.73% 0.75%(d) 0.84% 1.06%(d)
======== ======== ======== ======= =======
Ratio of net investment income to average net
assets......................................... 0.18%(b) 0.18% 0.39%(d) 0.46% 0.07%(d)
======== ======== ======== ======= =======
Portfolio turnover rate.......................... 65% 59% 37% 81% 34%
======== ======== ======== ======= =======
Average broker commission rate(e)................ $ 0.0577 $ 0.0592 N/A N/A N/A
======== ======== ======== ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $493,118,049.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
3
<PAGE> 4
AIM V.I. DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------- ------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.33 $ 10.00 $ 9.12 $ 10.46 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income............................ 0.73 0.73 0.69 0.76 0.54
Net gains (losses) on securities (both realized
and unrealized)................................ 0.24 0.28 0.94 (1.42) 0.29
------- ------- ------- ------- -------
Total from investment operations................. 0.97 1.01 1.63 (0.66) 0.83
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............. (0.01) (0.68) (0.75) (0.68) (0.35)
Distributions from net realized gains............ -- -- -- -- (0.02)
------- ------- ------- ------- -------
Total distributions.............................. (0.01) (0.68) (0.75) (0.68) (0.37)
------- ------- ------- ------- -------
Net asset value, end of period....................... $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46
======= ======= ======= ======= =======
Total return(a)...................................... 9.39% 10.19% 18.11% (6.35)% 8.33%
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........... $89,319 $63,624 $44,630 $25,271 $14,530
======= ======= ======= ======= =======
Ratio of expenses to average net assets(b)......... 0.80%(c)(d) 0.86% 0.88%(e) 0.91% 1.05%(e)
======= ======= ======= ======= =======
Ratio of net investment income to average net
assets(f)........................................ 6.90%(c) 7.09%(b) 7.65%(e) 8.07% 6.78%(e)
======= ======= ======= ======= =======
Portfolio turnover rate............................ 52% 76% 72% 100% 57%
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.03 and 1.69% (annualized) for January 31, 1995 and 1994, respectively.
(c) Ratios are based on average net assets of $74,589,876.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(e) Annualized.
(f) After fee waivers and/or expense reimbursement. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 7.95% and 6.14% (annualized) for January 31, 1995 and
1994, respectively.
AIM V.I. GLOBAL UTILITIES FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
----------------------------------- -----------
1997 1996 1995 1995
------- ------- ------ -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 12.55 $ 11.64 $ 9.69 $10.00
------- ------- ------ ------
Income from investment operations:
Net investment income.............................. 0.32 0.40 0.29 0.27
Net gains (losses) on securities (both realized and
unrealized)...................................... 2.40 0.99 1.98 (0.33)
------- ------- ------ ------
Total from investment operations................... 2.72 1.39 2.27 (0.06)
------- ------- ------ ------
Less distributions:
Dividends from net investment income............... -- (0.41) (0.31) (0.25)
Distributions from net realized gains.............. (0.01) (0.07) (0.01) --
------- ------- ------ ------
Total distributions................................ (0.01) (0.48) (0.32) (0.25)
------- ------- ------ ------
Net asset value, end of period......................... $ 15.26 $ 12.55 $11.64 $ 9.69
======= ======= ====== ======
Total return(a)........................................ 21.63% 12.07% 23.73% (0.56)%
======= ======= ====== ======
Ratios/supplemental data:
Net assets, end of period (000s omitted)............. $22,079 $13,576 $8,394 $2,958
======= ======= ====== ======
Ratio of expenses to average net assets.............. 1.28%(b)(c) 1.40%(d) 1.47%(d)(e) 1.31%(e)(f)
------- ------- ------ ------
Ratio of net investment income to average net
assets............................................. 2.81%(b) 3.56%(d) 3.76%(d)(e) 4.39%(e)(f)
======= ======= ====== ======
Portfolio turnover rate.............................. 28% 47% 58% 69%
======= ======= ====== ======
Average broker commission rate(g).................... $0.0365 $0.0477 N/A N/A
======= ======= ====== ======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $16,297,147.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have remained the same.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.55%, 3.42%, 2.44% (annualized) and 2.79% (annualized)
for 1996 and 1995, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 2.80% and 2.90%, respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
4
<PAGE> 5
AIM V.I. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------ -------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 9.87 $ 10.17 $ 9.39 $ 10.24 $ 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income.............................. 0.59 0.58 0.54 0.53 0.38
Net gains (losses) on securities (both realized and
unrealized)...................................... 0.22 (0.35) 0.74 (0.88) 0.10
------- ------- ------- ------- -------
Total from investment operations................... 0.81 0.23 1.28 (0.35) 0.48
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............... (0.01) (0.53) (0.50) (0.50) (0.24)
------- ------- ------- ------- -------
Net asset value, end of period......................... $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
======= ======= ======= ======= =======
Total return(a)........................................ 8.16% 2.29% 13.84% (3.42)% 4.78%
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)............. $33,800 $24,527 $19,545 $12,887 $10,643
======= ======= ======= ======= =======
Ratio of expenses to average net assets.............. 0.87%(b) 0.91% 1.19%(c) 0.95%(d) 1.00%(c)(d)
======= ======= ======= ======= =======
Ratio of net investment income to average net
assets............................................. 5.85%(b) 5.80% 5.78%(c) 5.51%(e) 4.74%(c)(e)
======= ======= ======= ======= =======
Portfolio turnover rate.............................. 66% 32% 41% 29% 0%
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $27,710,072.
(c) Annualized.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.10% and 1.80% (annualized) for January, 1995 and 1994, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.35% and 3.94% (annualized) for January, 1995 and 1994,
respectively.
AIM V.I. GROWTH FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
----------------------------------- ------------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 16.25 $ 14.44 $ 10.71 $ 11.59 $ 10.00
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income.......................... 0.08 0.07 0.09 0.06 0.02
Net gains (losses) on securities (both realized
and unrealized).............................. 4.27 2.52 3.65 (0.88) 1.59
-------- -------- -------- ------- -------
Total from investment operations.......... 4.35 2.59 3.74 (0.82) 1.61
-------- -------- -------- ------- -------
Less distributions:
Dividends from net investment income........... (0.09) (0.06) (0.01) (0.06) (0.02)
Distributions from net realized gains.......... (0.68) (0.72) -- -- --
-------- -------- -------- ------- -------
Total distributions....................... (0.77) (0.78) (0.01) (0.06) (0.02)
-------- -------- -------- ------- -------
Net asset value, end of period..................... $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59
======== ======== ======== ======= =======
Total return(a).................................... 26.87% 18.09% 34.89% (7.11)% 16.07%
======== ======== ======== ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)......... $258,852 $178,638 $102,600 $45,497 $25,115
======== ======== ======== ======= =======
Ratio of expenses to average net assets.......... 0.73%(b)(c) 0.78% 0.84%(d) 0.95% 0.85%(d)(e)
======== ======== ======== ======= =======
Ratio of net investment income to average net
assets......................................... 0.54%(b) 0.79% 0.95%(d) 0.71% 0.51%(d)(e)
======== ======== ======== ======= =======
Portfolio turnover rate.......................... 132% 143% 125% 179% 99%
======== ======== ======== ======= =======
Average broker commission rate(f)................ $ 0.0618 $ 0.0629 N/A N/A N/A
======== ======== ======== ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $224,542,336.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid expenses,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Annualized ratios of
expenses and net investment income (loss) to average net assets prior to fee
waivers and/or expense reimbursements were 1.50% and (0.14)%, respectively.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
5
<PAGE> 6
AIM V.I. GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JANUARY 31,
1997 1996 1995 1995
-------- -------- ------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 15.03 $ 12.68 $ 9.98 $10.00
-------- -------- ------- ------
Income from investment operations:
Net investment income................................... 0.13 0.16 0.14 0.11
Net gains (losses) on securities (both realized and
unrealized)........................................... 3.74 2.36 3.11 (0.02)
-------- -------- ------- ------
Total from investment operations........................ 3.87 2.52 3.25 0.09
-------- -------- ------- ------
Less distributions:
Dividends from net investment income.................... (0.01) (0.14) (0.14) (0.11)
Distributions from net realized gains................... (0.02) (0.03) (0.41) --
-------- -------- ------- ------
Total distributions..................................... (0.03) (0.17) (0.55) (0.11)
-------- -------- ------- ------
Net asset value, end of period.............................. $ 18.87 $ 15.03 $ 12.68 $ 9.98
======== ======== ======= ======
Total return(a)............................................. 25.72% 19.95% 32.65% 0.90%
======== ======== ======= ======
Ratios/supplemental data:
Net assets, end of period (000s omitted).................. $639,113 $209,332 $38,567 $7,380
======== ======== ======= ======
Ratio of expenses to average net assets................... 0.69%(b)(c) 0.78% 0.78%(d) 1.07%(d)(e)
======== ======== ======= ======
Ratio of net investment income to average net assets...... 1.15%(b) 2.05% 1.92%(d) 1.95%(d)(e)
======== ======== ======= ======
Portfolio turnover rate................................... 135% 148% 145% 96%
======== ======== ======= ======
Average broker commission rate(f)......................... $ 0.0612 $ 0.0644 N/A N/A
======== ======== ======= ======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $414,115,808.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.72% (annualized) and 1.30% (annualized), respectively.
(f) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
----------------------------------- -------------------
1997 1996 1995 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 16.36 $ 13.66 $ 11.03 $ 12.49 $ 10.00
-------- -------- ------- ------- -------
Income from investment operations:
Net investment income........................... 0.10 0.07 0.07 0.06 --
Net gains (losses) on securities (both realized
and unrealized)............................... 1.03 2.67 2.58 (1.49) 2.49
-------- -------- ------- ------- -------
Total from investment operations................ 1.13 2.74 2.65 (1.43) 2.49
-------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income............ (0.08) (0.04) (0.02) (0.03) --
-------- -------- ------- ------- -------
Distributions from net realized gains........... (0.28) -- -- -- --
======== ======== ======= ======= =======
Total distributions............................. (0.36) (0.04) (0.02) (0.03) --
======== ======== ======= ======= =======
Net asset value, end of period...................... $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
======== ======== ======= ======= =======
Total return(a)..................................... 6.94% 20.05% 24.04% (11.48)% 24.90%
======== ======== ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted).......... $211,023 $165,738 $82,257 $55,019 $23,533
======== ======== ======= ======= =======
Ratio of expenses to average net assets........... 0.93%(b)(c) 0.96% 1.15%(d) 1.27%(e) 1.98%(d)(e)
======== ======== ======= ======= =======
Ratio of net investment income to average net
assets.......................................... 0.68%(b) 0.78% 0.75%(d) 0.60%(f) (0.15)%(d)(f)
======== ======== ======= ======= =======
Portfolio turnover rate........................... 57% 59% 67% 64% 26%
======== ======== ======= ======= =======
Average broker commission rate paid(g)............ $ 0.0173 $ 0.0209 N/A N/A N/A
======== ======== ======= ======= =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $202,576,375.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.28% and 3.06% (annualized), for January 1995 and 1994 respectively.
(f) After fee waivers and/or expense reimbursements. Ratios and net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.59% and (1.23)% (annualized), for January 1995 and
1994 respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
6
<PAGE> 7
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
--------------------------------- -------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income............................ 0.05 0.05 0.05 0.04 0.02
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income............. (0.05) (0.05) (0.05) (0.04) (0.02)
------- ------- ------- ------- -------
Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return......................................... 5.14% 4.97% 5.69%(a) 3.98% 2.27%(a)
======= ======= ======= ======= =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........... $58,635 $63,529 $65,506 $31,017 $13,891
======= ======= ======= ======= =======
Ratio of expenses to average net assets............ 0.59%(b)(c) 0.55% 0.53%(a) 0.63%(d) 0.95%(a)(e)
======= ======= ======= ======= =======
Ratio of net investment income to average net
assets........................................... 5.01%(b) 4.84% 5.40%(a) 4.14%(d) 2.29%(a)(e)
======= ======= ======= ======= =======
</TABLE>
- ---------------
(a) Annualized.
(b) Ratios are based on average net assets of $63,641,415.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) After fee waivers and/or expense reimbursements. Prior to fee waivers and/or
expense reimbursements the ratios of expenses and net investment income to
average net assets are 0.70% and 4.07%, respectively.
(e) After fee waivers and/or expense reimbursements. Prior to fee waivers and/or
expense reimbursements the annualized ratios of expenses and net investment
income to average net assets are 1.53% and 1.70%, respectively.
AIM V.I. VALUE FUND
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
----------------------------------- -------------------
1997 1996 1995 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 17.48 $ 16.11 $ 11.83 $ 12.17 $ 10.00
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income......................... 0.08 0.30 0.11 0.10 0.02
Net gains (losses) on securities (both
realized and unrealized).................... 4.05 2.09 4.18 (0.35) 2.17
-------- -------- -------- -------- -------
Total from investment operations.............. 4.13 2.39 4.29 (0.25) 2.19
-------- -------- -------- -------- -------
Less distributions:
Dividends from net investment income.......... (0.19) (0.10) (0.01) (0.09) (0.02)
Dividends from realized gains................. (0.59) (0.92) -- -- --
-------- -------- -------- -------- -------
Total distributions...................... (0.78) (1.02) (0.01) (0.09) (0.02)
-------- -------- -------- -------- -------
Net asset value, end of period.................... $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
======== ======== ======== ======== =======
Total return(a)................................... 23.69% 15.02% 36.25% (2.03)% 21.94%
======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of period (000s omitted)........ $690,841 $369,735 $257,212 $109,257 $38,255
======== ======== ======== ======== =======
Ratio of expenses to average net assets......... 0.70%(b)(c) 0.73% 0.75%(d) 0.82% 1.00%(d)(e)
======== ======== ======== ======== =======
Ratio of net investment income to average net
assets........................................ 1.05%(b) 2.00% 1.11%(d) 1.17% 0.51%(d)(e)
======== ======== ======== ======== =======
Portfolio turnover rate......................... 127% 129% 145% 143% 87%
======== ======== ======== ======== =======
Average broker commission rate(e)............... $ 0.0487 $ 0.0429 N/A N/A N/A
======== ======== ======== ======== =======
</TABLE>
- ---------------
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $529,874,605.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid indirectly,
the ratio of expenses to average net assets would have been the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Annualized ratios of
expenses and net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 1.35% and 0.16%, respectively.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
7
<PAGE> 8
- --------------------------------------------------------------------------------
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. 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.
Average annual total return is computed in accordance with a standardized
formula described in the Statement of Additional Information. 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.
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. Quotations of a
Fund's performance will not reflect charges levied at the separate account
level.
The performance of each Fund will vary from time to time and past results are
not necessarily indicative of future results. A Fund's performance is a function
of its portfolio management in selecting the type and quality of portfolio
securities and is affected by operating expenses of the Fund and market
conditions. A shareholder's investment in a Fund is not insured or guaranteed.
These factors should be carefully considered by the investor before making an
investment in a Fund.
- --------------------------------------------------------------------------------
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(s) of each Fund, except the High Yield Fund,
are deemed to be fundamental policies and, therefore, unless permitted by law,
may not be changed without the approval of a majority of that Fund's outstanding
shares (within the meaning of the 1940 Act). The Board of Directors on behalf of
the High Yield Fund is permitted to change the investment objective of that Fund
without shareholder approval. Each Fund's investment policies, strategies and
practices are not fundamental. The Board of Directors of the Company reserves
the right to change any of these non-fundamental investment policies, strategies
or practices without shareholder approval. However, shareholders will be
notified before any material change in the investment policies become effective.
Each Fund has adopted investment restrictions, some of which are fundamental and
cannot be changed without shareholder approval. See "Investment Restrictions" in
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. AGGRESSIVE GROWTH FUND. The Fund's investment objective is to achieve
long-term growth of capital. The Fund seeks to achieve its objective by
investing primarily in common stocks, convertible bonds, convertible preferred
stocks and warrants of companies which, in the opinion of the Fund's investment
advisor, are expected to achieve earnings growth over time at a rate in excess
of 15% per year. Many of these companies are in the small to medium-sized
category (i.e., companies with a market capitalization within the range of small
cap stocks in the Russell 2000 Index). Management of the Fund will be
particularly interested in companies that are likely to benefit from new or
innovative products, services or processes that should enhance such companies'
prospects for future growth in earnings. As a result of this policy, the market
prices of many of the securities purchased and held by the Fund may fluctuate
widely. Any income received from securities held by the Fund will be incidental,
and an investor should not consider a purchase of shares of the Fund as
equivalent to a complete investment program. The Fund's portfolio is primarily
comprised of securities of two basic categories: (a) "core" companies, which
Fund management considers to have experienced above-average and consistent long-
term growth in earnings and to have excellent prospects for outstanding future
growth, and (b) "earnings acceleration" companies which Fund management believes
are currently enjoying dramatic increase in profits. The Fund's strategy does
not preclude investment in large, seasoned companies which in the judgment of
AIM possess superior potential returns similar to companies with formative
growth profiles. The Fund will also invest in established smaller companies
(under $500 million in market capitalization) which offer exceptional value
based upon substantially above average earnings growth potential relative to
market value. The Fund may invest in non-equity securities, such as corporate
bonds or U.S. Government obligations during periods when, in the opinion of AIM,
prevailing market, financial, or economic conditions warrant, as well as when
such holdings are advisable in light of a change in circumstances of a
particular company or within a particular industry. For additional information
about the Fund's investment techniques and strategies, see "Certain Investment
Strategies and Techniques" in this Prospectus and "Investment Programs" in the
Statement of Additional Information.
8
<PAGE> 9
AIM V.I. BALANCED FUND. The Fund's objective is to achieve as high a total
return to investors as possible, consistent with preservation of capital. The
Fund seeks to achieve its objective by investing in a broadly diversified
portfolio of high-yielding securities, including common stocks, preferred
stocks, convertible securities and bonds. Although equity securities will be
purchased primarily for capital appreciation and fixed income securities will be
purchased primarily for income purposes, income and capital appreciation
potential will be considered in connection with all investments. The Fund
normally will have a minimum of 30% and a maximum of 70% of its total assets
invested in equity securities and a minimum of 30% and a maximum of 70% of its
total assets invested in (non-convertible) fixed income securities. Most of such
fixed income securities will be rated Baa or better by Moody's Investors
Service, Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Services
("S&P") or, if unrated, deemed to be of comparable quality by AIM, although the
Fund may invest to a limited extent in lower-rated securities. (For a
description of the various rating categories, see Appendix A to this
Prospectus.) The fixed income securities in which the Fund invests may include
U.S. Government obligations, mortgage-backed securities, asset-backed
securities, bank obligations, corporate debt obligations and unrated
obligations, including those of foreign issuers. The Fund may, in pursuit of its
objective, invest up to 10% of its total assets in debt securities rated lower
than Baa by Moody's or BBB by S&P, which are commonly known as "junk bonds." See
"Risk Factors -- Non-Investment Grade Debt Securities" for more information
concerning the risk factors associated with investing in such securities. The
Fund may also invest up to 25% of its total assets in convertible securities.
Compliance with all of the above percentage requirements may limit the ability
of the Fund to maximize total return. The actual percentage of the assets
invested in equity and fixed income securities will vary from time to time,
depending on the judgment of AIM as to general market and economic conditions
and trends, yields and interest rates and changes in fiscal and monetary
policies. For additional information about the Fund's investment techniques and
strategies, see "Certain Investment Strategies and Techniques" in this
Prospectus and "Investment Programs" in the Statement of Additional Information.
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 with excellent prospects for outstanding
future growth, and (2) "earnings acceleration" companies which AIM believes are
currently enjoying a dramatic increase in profits. For additional information
about the Fund's investment techniques and strategies, see "Certain Investment
Strategies and Techniques" in this Prospectus and "Investment Programs" in the
Statement of Additional Information.
AIM V.I. CAPITAL DEVELOPMENT FUND. The Fund's investment objective is
long-term capital appreciation. Production of income is incidental to this
objective. The Fund's principal investments are in common stocks, convertible
securities and bonds. There can, of course, be no assurance that the Fund will
in fact achieve its objective since all investments are inherently subject to
market risks.
The Fund will invest primarily in securities of small and medium-sized
companies (i.e., companies which fall in the smallest 85% by market
capitalization of publicly traded companies in the United States). Among factors
that AIM may consider when selecting investments in a company for the Fund are
(i) the growth prospects for a company's product, (ii) the economic outlook for
its industry, (iii) a company's new product development, (iv) its operating
management capabilities, (v) the relationship between the price of the security
and its estimated fundamental value, (vi) relevant market, economic and
political environments and (vii) financial characteristics such as balance sheet
analysis and return on assets. The Fund may invest in issuers making initial
public offerings of their securities if AIM determines that the issuer has good
prospects for growth. The Fund may also invest up to 10% of its total assets in
securities of other registered investment companies. For additional information
about the Fund's investment techniques and strategies, see "Certain Investment
Strategies and Techniques" in this Prospectus and "Investment Programs" in the
Statement of Additional Information.
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, similar equity securities and convertible securities of U.S. and foreign
companies. The Fund does not intend to invest more than 50% of its total assets
in lower-rated or unrated high yield securities or more than 50% of its total
assets in foreign debt securities. (For a description of the various rating
categories of corporate debt securities in which the Fund may invest, see
Appendix A to this 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 and "Investment Programs" in the Statement of
Additional Information".
For a breakdown of the quality ratings of the Fund's investments as of
December 31, 1997, see "Risk Factors -- Portfolio Ratings."
9
<PAGE> 10
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. The Fund may invest up
to 25% of its total assets in convertible securities. When AIM deems it
appropriate, the Fund may also purchase the bonds of such companies. Investments
in non-convertible bonds, however, will not exceed 25% of the Fund's total
assets. The Fund may invest up to 10% of its total assets in lower-rated or
unrated high yield securities. (For a description of the various rating
categories of corporate debt securities in which the Fund may invest, see
Appendix A to this Prospectus.) During the fiscal year ended December 31, 1997,
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 and "Investment Programs" in the Statement of Additional Information.
A portfolio of utility company securities is subject to a different degree of
volatility than a more broadly diversified portfolio. Economic, operational or
regulatory changes that affect utility companies will have a material impact
upon the value of the securities that the Fund owns. Events, such as changing
weather patterns, emergencies involving nuclear power plants, or rapidly
changing fuel prices that have no direct connection with companies whose
securities are owned by the Fund may affect the prices of those securities.
Moreover, a portfolio of utilities industry securities is subject to the risks
unique to that industry, such as inflationary or other increases in fuel and
operating expenses, possible increases in the interest costs of loans needed for
capital construction programs, compliance with environmental regulations,
possible adverse changes in the regulatory climate and availability of fuel
sources.
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
instrumentalities listed in (b) and (c), above. Accordingly, such securities may
involve risk of loss of principal and interest; however, historically there have
not been any defaults of such issues. For a listing of some of the types of
Agency Securities in which the Fund may invest, see Appendix B to this
Prospectus. For additional information about the Fund's investment techniques
and strategies, see "Certain Investment Strategies and Techniques" in this
Prospectus and "Investment Programs" in the Statement of Additional Information.
The Fund's investments include high coupon U.S. Government Agency
Mortgage-Backed Securities, which provide a higher coupon at the time of
purchase than the prevailing market rate yield. The prices of high coupon U.S.
Government Agency Mortgage-Backed Securities do not tend to rise as rapidly as
those of traditional fixed rate securities at times when interest rates are
decreasing, and tend to decline more slowly at times when interest rates are
increasing. The Fund may purchase such securities at a premium, which means that
a faster principal prepayment rate than expected will reduce the market value of
and income from such securities, while a slower prepayment rate will tend to
increase the market value of and income from such securities.
The composition and weighted average maturity of the Fund's portfolio will
vary from time to time, based upon the determination of AIM 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 and "Investment Programs" in the Statement of Additional Information.
The Fund's portfolio is primarily comprised of securities of two basic
categories of companies: (1) "core" companies, which AIM considers to have
experienced
10
<PAGE> 11
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 & 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. For additional information about the Fund's investment techniques
and strategies, see "Certain Investment Strategies and Techniques" in this
Prospectus and "Investment Programs" in the Statement of Additional Information.
AIM V.I. HIGH YIELD FUND. The Fund's objective is to achieve a high level of
current income. The Fund seeks to achieve its objective by investing primarily
in publicly traded non-investment grade debt securities. The Fund will also
consider the possibility of capital growth when it purchases and sells
securities. Debt securities of less than investment grade are considered "high
risk" securities (commonly referred to as junk bonds). The Fund seeks high
income principally by purchasing securities that are rated Baa, Ba or B by
Moody's or BBB, BB or B by S&P, or securities of comparable quality in the
opinion of AIM that are either unrated or rated by other NRSROs. (For a
description of the various rating categories, see Appendix A to this
Prospectus.) The Fund may also hold, from time to time, securities rated Caa by
Moody's or CCC by S&P, or, if unrated or rated by other NRSROs, securities of
comparable quality as determined by AIM. It should be noted, however, that
achieving the Fund's investment objective may be more dependent on the credit
analysis of AIM, and less on that of credit rating agencies, than may be the
case for funds that invest in more highly rated bonds. At least 80% of the value
of the Fund's total assets will be invested in debt securities, including
convertible debt securities, and/or cash and cash equivalents. At least 65% of
the value of the Fund's assets will be invested in high yield debt securities.
The Fund may also invest in preferred stocks. For additional information about
the Fund's investment techniques and strategies, see "Certain Investment
Strategies and Techniques" in this Prospectus and "Investment Programs" in the
Statement of Additional Information.
While the securities held by the Fund are expected to provide greater income
and, possibly, opportunity for greater gain than investments in more highly
rated securities, they may be subject to greater risk of loss of income and
principal and are more speculative in nature. The Fund's yield and the net asset
value of its shares may be expected to fluctuate over time. Therefore, an
investment in the Fund may not be appropriate for some investors and should not
constitute a complete investment program for others. See "Risk
Factors -- Non-Investment Grade Debt Securities."
The Fund may invest in both illiquid securities and securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933. See "Illiquid Securities" for further information
regarding such investments.
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 and "Investment
Programs" in the Statement of Additional Information.
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
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such obligations. The Money Market Fund intends to invest in bankers'
acceptances, certificates of deposit, repurchase agreements, time deposits,
variable rate master demand notes, taxable municipal securities and commercial
paper, and U.S. Government direct obligations and U.S. Government agencies'
securities. Bankers' acceptances, certificates of deposit and time deposits may
be purchased from U.S. or foreign banks. All of these instruments, which are
collectively referred to as "Money Market Obligations," are briefly described in
Appendix C to this Prospectus and are described more fully in the Statement of
Additional Information. For additional information about the Fund's investment
techniques and strategies, see "Certain Investment Strategies and Techniques" in
this Prospectus and "Investment Programs" 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.
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. For additional information about the Fund's investment
techniques and strategies, see "Certain Investment Strategies and Techniques" in
this Prospectus and "Investment Programs" in the Statement of Additional
Information.
In addition to the securities described above, the Fund may also acquire
preferred stocks and debt instruments having prospects for growth of capital.
Although these different types of securities can be expected to generate amounts
of income to satisfy the Fund's secondary objective, they will be purchased for
their potential for growth of capital.
The primary thrust of AIM's search for undervalued equity securities is in
four categories: (1) out-of-favor cyclical growth companies; (2) established
growth companies that are undervalued compared to historical relative valuation
parameters; (3) companies where there is early but tangible evidence of
improving prospects which are not yet reflected in the price of the company's
equity securities; and (4) companies whose equity securities are selling at
prices that do not reflect the current market value of its assets and where
there is reason to expect realization of this potential in the form of increased
equity values.
CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES. Each of the Funds has the
flexibility to invest, to the extent described below, in a variety of
instruments designed to enhance its investment capabilities. Each of the Funds
may invest in money market obligations, foreign securities (including ADRs and
EDRs), repurchase agreements, reverse repurchase agreements, taxable municipal
securities, illiquid securities and Rule 144A securities; the Diversified Income
Fund and the Government Fund may invest in U.S. Government Agency
Mortgage-Backed Securities; each of the Funds may purchase or sell securities on
a delayed delivery or when-issued basis and may borrow money; each of the Funds,
other than the Money Market Fund, may lend portfolio securities and make short
sales "against the box." A short sale is "against the box" to the extent that
the Fund contemporaneously owns or has the right to obtain securities identical
to those sold short without payment of any further consideration.
Each of the Funds, other than the Money Market Fund, may write (i.e., sell)
"covered" put and call options and buy put and call options on domestic and
foreign securities, securities indices and currencies. Each of the Funds, other
than the Money Market Fund, may use exchange-traded financial futures contracts,
options thereon, and forward contracts as a hedge to protect against possible
changes in market values. A brief description of these investment instruments
and their risks appears below. See "Hedging and Other Investment Techniques" in
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.
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While none of the Funds other than the Money Market Fund is required by
regulation or fundamental policy to limit such investments to those which, at
the date of purchase, are "First Tier" securities as that term is defined in
Rule 2a-7 under the 1940 Act, it is the current intention of AIM to limit such
investments to those securities which, at the time of purchase, are considered
"First Tier" securities or securities which AIM has determined to be of
comparable credit quality. To the extent that a Fund invests to a significant
degree in these instruments, its ability to achieve its investment objectives
may be adversely affected.
In addition to the Money Market Obligations described above, as a temporary or
defensive measure, and without regard to their respective investment objectives,
AIM may invest all or substantially all of the assets of the Aggressive Growth
Fund, the Balanced Fund, the Diversified Income Fund, the Global Utilities Fund,
the High Yield 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 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.
CONVERTIBLE SECURITIES. To the extent consistent with their respective
investment objectives, each of the Funds (except the Money Market Fund) may
invest in convertible securities. Convertible securities usually consist of
corporate debt securities or preferred stock that may in certain circumstances
be converted into a predetermined number of shares of another form of that
issuer's equity, usually common stock. Convertible securities consequently often
involve attributes of both debt and equity instruments, and investment in such
securities requires analysis of both credit and stock market risks. Convertible
securities rank senior to common stock in a corporation's capital structure but
are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. Although the
Funds will only purchase convertible securities that AIM considers to have
adequate protection parameters, including an adequate capacity to pay interest
and repay principal in a timely manner, each applicable Fund invests in such
securities without regard to corporate bond ratings.
FOREIGN SECURITIES. To the extent consistent with their respective investment
objectives, each of the Funds may invest in foreign securities. It is not
anticipated that such foreign securities will constitute more than: (i) 20% of
the value of the total assets of the Balanced Fund, the Capital Appreciation
Fund, the Government Fund, the Growth Fund, the Growth & Income Fund, and the
Money Market Fund); (ii) 25% of the value of the total assets of the Aggressive
Growth Fund, the Capital Development Fund, the High Yield Fund and the Value
Fund; (iii) 50% of the value of the total assets of the Diversified Income Fund;
and (iv) 80% of the value of the total assets of the Global Utilities Fund. The
International Fund will invest at least 70% of its total assets in foreign
securities.
The Diversified Income Fund may invest in debt obligations which may be
denominated in the U.S. dollar or in other currencies issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank,
Asian Development Bank and European Economic Community), and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities. The Diversified Income Fund may also invest in debt
obligations issued by U.S. corporations denominated in non-U.S. dollar
currencies. No more than 25% of the Diversified Income Fund's total assets, at
the time of purchase, will be invested in government securities of any one
foreign country. At the present time, AIM does not intend to invest more than
10% of the Diversified Income 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.
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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 70%
of its total assets in marketable equity securities (including common and
preferred stock and depositary receipts for stock) and may invest up to 20% of
its total assets in securities exchangeable for or convertible into stock of
foreign companies. The issuers of such securities will, along with their
predecessors, have been in continuous operation for three years or more and
(except in the case of certain ADRs and other securities representing underlying
securities of foreign issuers) will be 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 above) may also invest in securities which are in the form of ADRs,
EDRs or other securities representing underlying securities of foreign issuers.
ADRs are receipts typically issued by a United States bank or trust company
which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. ADRs, EDRs and other securities representing underlying
securities of foreign issuers are treated as foreign securities for purposes of
determining the applicable limitation on investment in foreign securities.
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. 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 advisor 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.
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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 liquid assets in
an amount equal to its delayed delivery agreements or when-issued commitments.
If the market value of such securities declines, additional cash or securities
will be segregated on a daily basis so that the market value of the account will
equal the amount of such Fund's delayed delivery agreements and when-issued
commitments. To the extent that funds are segregated, they will not be available
for new investment or to meet redemptions. Investment in securities on a
when-issued basis and use of delayed delivery agreements may increase the Fund's
exposure to market fluctuation, or may increase the possibility that the Fund
will incur a short-term loss, if the Fund must engage in portfolio transactions
in order to honor a when-issued commitment or accept delivery of a security
under a delayed delivery agreement. The Fund will employ techniques designed to
minimize these risks. No additional delayed delivery agreements or when-issued
commitments will be made by a Fund if, as a result, more than 25% of the Fund's
net assets would become so committed.
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 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.
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 liquid assets which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. 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
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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 or has the
right to acquire the underlying security covered by the call or, in the case of
a call option on an index, holds securities the price changes of which are
expected to substantially replicate the movement of the index. A put option is
covered if, for example, the Fund maintains in a segregated account with its
custodian liquid assets 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.
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 "collar."
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.
16
<PAGE> 17
FUTURES AND FORWARD CONTRACTS. Each of the Funds, other than the Money Market
Fund, may purchase and sell futures contracts on debt securities and on indexes
of debt securities to hedge against anticipated changes in interest rates that
might otherwise have an adverse effect on the value of their assets or assets
they intend to acquire. In addition, they may purchase and sell stock index
futures contracts to hedge the value of the portfolio against changes in market
conditions. These Funds may also purchase put and call options on futures
contracts and write "covered" put and call options on futures contracts in order
to hedge against changes in interest rates or stock prices. Although the Funds
are authorized to invest in futures contracts and related options with respect
to non-U.S. instruments, they will limit such investments to those which have
been approved by the Commodity Futures Trading Commission ("CFTC") for
investment by U.S. investors. These Funds may enter into futures contracts and
buy and sell related options, provided that the futures contracts and related
options investments are made for "bona fide hedging" purposes, as defined under
CFTC regulations. No more than 5% of a Fund's total assets will be committed to
initial margin deposits required pursuant to futures contracts. Percentage
investment limitations on a Fund's investment in options on futures contracts
are set forth above under "Options."
To the extent that any of the Funds invests in securities denominated in
foreign currencies (which is substantially all of the securities held by the
International Fund and a significant portion of securities held by the
Diversified Income Fund and the Global Utilities Fund), the value of the Fund's
portfolio will be affected by changes in exchange rates between currencies
(including the U.S. dollar), as well as by changes in the market value of the
securities themselves. In order to mitigate the effects of such changes, each of
the Funds, other than the Money Market Fund, may enter into futures contracts on
foreign currencies (and related options) and may enter into forward contracts
for the purchase or sale of a specific currency at a future date at a price set
at the time of the contract. Forward contracts are traded over-the-counter, and
not on organized commodities or securities exchanges. As a result, it may be
more difficult to value such contracts, and it may be difficult to enter into
closing transactions with respect to them.
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.
- --------------------------------------------------------------------------------
RISK FACTORS
Investors should consider carefully the following special factors before
investing in any of the Funds.
SMALL CAPITALIZATION COMPANIES. Investors should realize that equity
securities of small to medium-sized companies may involve greater risk than is
associated with investing in more established companies. Small to medium-sized
companies often have limited product and market diversification, fewer financial
resources or may be dependent on a few key managers. Any one of the foregoing
may change suddenly and have an immediate impact on the value of the company's
securities. Furthermore, whenever the securities markets are experiencing rapid
price changes due to national economic trends, secondary growth securities have
historically been subject to exaggerated price changes.
17
<PAGE> 18
NON-INVESTMENT GRADE DEBT SECURITIES. The Balanced Fund, the Diversified
Income Fund, the High Yield Fund, and to a lesser extent the Global Utilities
Fund, 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 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.
PORTFOLIO RATINGS. During the fiscal year ended December 31, 1997, the
percentage of average annual assets of the Diversified Income Fund calculated on
a dollar weighted basis, which was invested in securities within the various
rating categories (based on the higher of S&P and Moody's 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..................................................... 25.12%
AA/Aa....................................................... 12.28%
A/A......................................................... 15.85%
BBB/Baa..................................................... 17.11%
BB/Ba....................................................... 7.91%
B/B......................................................... 18.36%
CCC/Caa..................................................... 0.47%
CC/Ca....................................................... 0%
C/C......................................................... 0%
Unrated..................................................... 2.90%
-----
Total Average Annual Assets....................... 100%
</TABLE>
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
18
<PAGE> 19
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.)
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 herein.
The estimated portfolio turnover rate for each of the Aggressive Growth Fund,
the Balanced Fund, the Capital Development Fund and the High Yield Fund is less
than 100%. A higher rate of portfolio turnover may result in higher transaction
costs, including brokerage commissions. See "Dividends, Distributions and Tax
Matters."
- --------------------------------------------------------------------------------
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 corporation of AIM. AIM Management is a holding company engaged in the
financial services business and is an indirect wholly owned subsidiary of
AMVESCAP PLC. AMVESCAP PLC and its subsidiaries are an independent investment
management group engaged in institutional investment management and retail
mutual fund businesses in the United States, Europe and the Pacific Region.
Information concerning the Board of Directors may be found in the Statement of
Additional Information.
For a discussion of AIM Management and its subsidiaries' Year 2000 Compliance
Project, see "General Information -- Year 2000 Compliance Project."
INVESTMENT ADVISOR. A I M Advisors, Inc., 11 Greenway Plaza, Suite 100,
Houston, TX 77046-1173, serves as the investment advisor to each Fund pursuant
to a master investment advisory agreement, dated February 28, 1997 (the
"Advisory Agreement"). AIM was organized in 1976, and, together with its
subsidiaries, manages or advises over 50 investment company portfolios
encompassing a broad range of investment objectives.
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 dated May 1, 1998 (the "Administrative
Services Agreement") between the Company and AIM with respect to each Fund AIM
provides the services of the Company's principal financial 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. A
master administrative services agreement with substantially similar terms to the
Administrative Services Agreement, was in effect prior to May 1, 1998. 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 approximately 135 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
19
<PAGE> 20
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
subsidiaries 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, Kenneth A. Zschappel and Charles D. Scavone are primarily
responsible for the day-to-day management of the AGGRESSIVE GROWTH 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 1998. He has been associated with AIM and/or
its subsidiaries since 1989 and has been an investment professional since 1988.
Mr. Zschappel is Assistant Vice President of AIM Capital and has been
responsible for the Fund since its inception in 1998. He has been associated
with AIM and/or its subsidiaries since 1990 and has been an investment
professional since 1991. Mr. Scavone is Vice President of AIM Capital and has
been associated with AIM and/or its subsidiaries since 1996. He has been
responsible for the Fund since its inception in 1998 and has been an investment
professional since 1991. Prior to 1996, he was Associate Portfolio Manager for
Van Kampen American Capital Asset Management, Inc. from 1994 to 1996. From 1991
to 1994, he worked in the investments department at Texas Commerce Investment
Management Company, with his last position being Equity Research
Analyst/Assistant Portfolio Manager.
Carolyn L. Gibbs, Claude C. Cody IV, Robert G. Alley and Craig A. Smith are
responsible for the day-to-day management of the BALANCED FUND'S portfolio
securities. Ms. Gibbs is Vice President of AIM Capital and has been responsible
for the Fund since its inception in 1998. She has been associated with AIM
and/or its subsidiaries since 1992 and has been an investment professional since
1983. Mr. Cody is Vice President of AIM Capital and has been responsible for the
Fund since its inception in 1998. He has been associated with AIM and/or its
subsidiaries since 1992 and has been an investment professional since 1976. Mr.
Alley is Senior Vice President of AIM Capital, Vice President of AIM and of the
Company and has been responsible for the Fund since its inception in 1998. He
has been associated with AIM and/or its subsidiaries since 1992 and has been an
investment professional since 1972. Mr. Smith is Vice President of AIM Capital
and also has been responsible for the Fund since its inception in 1998. He has
been associated with AIM and/or its subsidiaries since 1989 and has been an
investment professional since 1988.
Robert M. Kippes, Charles D. Scavone, 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 AIM
Capital and has been responsible for the Fund since its inception in 1993. He
has been associated with AIM and/or its subsidiaries since 1989 and has been an
investment professional since 1988. Mr. Scavone is Vice President of AIM Capital
and has been responsible for the fund since 1998. He has been associated with
AIM and/or its subsidiaries since 1996 and has been an investment professional
since 1991. Prior to 1996, he was Associate Portfolio Manager for Van Kampen
American Capital Asset Management, Inc. from 1994 to 1996. From 1991 to 1994, he
worked in the investments department at Texas Commerce Investment Management
Company, with his last position being Equity Research Analyst/Assistant
Portfolio Manager. Mr. Schoolar 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. He has been with AIM and/or its
subsidiaries since 1986 and has been an investment professional since 1984. Mr.
Barnard is Vice President of AIM Capital and has been responsible for the Fund
since 1993. He has been associated with AIM and/or its subsidiaries since 1982
and has been an investment professional since 1975.
Edgar M. Larsen, Paul J. Rasplicka and Kenneth A. Zschappel are primarily
responsible for the day-to-day management of CAPITAL DEVELOPMENT FUND'S
portfolio securities. Mr. Larsen is Vice President of AIM Capital. Mr. Larsen
joined AIM in 1996 as a portfolio manager of equity funds. He has been
responsible for the Fund since its inception in 1998 and has been an investment
professional since 1966. Prior to 1996, he was Senior Vice President of John
Hancock Advisers, Inc. in Houston and the portfolio manager of that firm's
emerging growth fund. Mr. Rasplicka is a senior portfolio manager of AIM Capital
and has been responsible for the Fund since its inception in 1998. He has been
associated with AIM and/or its subsidiaries since 1998 and began his investment
career in 1982. Prior to 1998, Mr. Rasplicka was a portfolio manager for INVESCO
Trust Company, an affiliate of AIM, from 1994 to 1998 and a Vice President of
Chase Investment-Counsel from 1992 to 1994. Mr. Zschappel is Assistant Vice
President of AIM Capital and has been responsible for the Fund since its
inception in 1998. He has been associated with AIM and/or its subsidiaries since
1990 and has been an investment professional since 1991.
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 of the
Company and has been responsible for the Fund since its inception in 1993. He
has been associated with AIM and/or its subsidiaries since 1992 and has been an
investment professional since 1972. Mr. Pessarra is Vice President of AIM
Capital and has been associated with AIM and/or its subsidiaries since 1990. He
has been responsible for the Fund since its inception in 1993, and has been an
investment professional since 1984. Ms. Gibbs is currently Vice President of AIM
Capital and has been associated with AIM and/or its subsidiaries since 1992 and
has been an investment professional since 1983. She has been responsible for the
Fund since 1995.
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. He has been associated with AIM and/or its
subsidiaries since 1992 and has been an investment professional since 1976. Mr.
Alley is Senior Vice President of AIM Capital, Vice President of AIM and of the
Company and has been responsible for the Fund since its inception in 1994. He
has been associated with AIM and/or its subsidiaries since 1992 and has been an
investment professional since 1972.
20
<PAGE> 21
Mr. Smith is Vice President of AIM Capital and has been responsible for the Fund
since 1996. He has been associated with AIM and/or its subsidiaries since 1989
and has been an investment professional since 1988.
Karen Dunn Kelley, Meggan M. Walsh and Paula A. Permenter 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 of the
Company and has been responsible for the Fund since its inception in 1993. She
has been associated with AIM and/or its subsidiaries since 1989 and has been an
investment professional since 1982. Ms. Walsh is Vice President of AIM Capital
and has been responsible for the Fund since its inception in 1993. She has been
associated with AIM and/or its subsidiaries since 1991 and has been an
investment professional since 1987. Ms. Permenter has been responsible for the
Fund since 1996. She has been associated with AIM since 1996 and has been an
investment professional since 1988. Prior to 1996, she was an Associate Trader
and Investment Assistant with Van Kampen American Capital Asset Management, Inc.
Monika H. Degan, 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. Ms. Degan has been responsible for the Fund since 1998.
She has been associated with AIM and/or its subsidiaries since 1995 and has been
an investment professional since 1990. Mr. Schoolar 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. He has been
associated with AIM and/or its subsidiaries since 1986 and has been an
investment professional since 1984. Mr. Kippes is Vice President of AIM Capital
and has been responsible for the Fund since its inception in 1993. He has been
associated with AIM and/or its subsidiaries since 1989 and has been an
investment professional since 1988. Mr. Barnard is Vice President of AIM Capital
and has been responsible for the Fund since its inception in 1993. He has been
associated with AIM and/or its subsidiaries since 1982 and has been an
investment professional since 1975.
Brant H. DeMuth, Lanny H. Sachnowitz and Joel E. Dobberpuhl are primarily
responsible for day-to-day management of the GROWTH & INCOME FUND'S portfolio
securities. Mr. DeMuth has been responsible for the Fund since 1998. He has been
associated with AIM and/or its subsidiaries since 1996 and has been an
investment professional since 1987. Prior to 1996, he was a portfolio manager
for the Colorado Public Employee Retirement Association from 1992 to 1996. Mr.
Sachnowitz is Vice President of AIM Capital and has been responsible for the
Fund since its inception in 1994. He has been an investment professional since
1987 and has been associated with AIM and/or its subsidiaries since 1987. Mr.
Dobberpuhl is Vice President of AIM Capital and has been responsible for the
Fund since 1995. He has been an investment professional since 1988 and has been
associated with AIM and/or its subsidiaries since 1990.
John L. Pessarra and Kevin E. Rogers are responsible for the day-to-day
management of the HIGH YIELD FUND'S portfolio securities. Mr. Pessarra is Vice
President of AIM Capital and has been responsible for the Fund since its
inception in 1998. He has been associated with AIM and/or its subsidiaries since
1990 and has been an investment professional since 1984. Mr. Rogers is Vice
President of AIM Capital and has been responsible for the Fund since its
inception in 1998. He has been associated with AIM and/or its subsidiaries since
1991 and has been an investment professional since 1987.
A. Dale Griffin III, Paul A. Rogge, Barrett K. Sides and Clas G. Olsson 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. He has been associated
with AIM and/or its subsidiaries since 1989 and has been an investment
professional since 1987. Mr. Rogge is Vice President of AIM Capital and has been
associated with AIM and/or its subsidiaries since 1991. He has been responsible
for the Fund since its inception in 1993 and has been an investment professional
since 1991. Mr. Sides is Assistant Vice President of AIM Capital and has been
associated with AIM and/or its subsidiaries since 1990. He has been responsible
for the Fund since 1995 and has been an investment professional since 1990. Mr.
Olsson has been responsible for the Fund since 1997. He has been associated with
AIM and/or its subsidiaries since 1994 and has been an investment professional
since 1994. Prior to 1994, he was a broker assistant with Merrill Lynch.
Joel E. Dobberpuhl and Robert A. Shelton are responsible for day-to-day
management of the VALUE FUND'S portfolio securities. Mr. Dobberpuhl is Vice
President of AIM Capital and has been responsible for the Fund since its
inception in 1993. He has been associated with AIM and/or its subsidiaries since
1990 and has been an investment professional since 1988. Mr. Shelton has been
responsible for the Fund since 1997. He has been associated with AIM and/or its
subsidiaries since 1995 and has been an investment professional since 1991.
Prior to 1995, he was a financial analyst for CS First Boston.
21
<PAGE> 22
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 fiscal year ended
December 31, 1997, compensation paid to AIM pursuant to the Advisory Agreement
and the total expenses of each Fund (except the Aggressive Growth Fund, the
Balanced Fund, the Capital Development Fund and the High Yield Fund) stated as a
percentage of each Fund's average daily net assets, were as follows:
<TABLE>
<CAPTION>
COMPENSATION COMPENSATION
TO AIM EXPENSE RATIO TO AIM EXPENSE RATIO
(AFTER ANY (AFTER ANY (BEFORE ANY (BEFORE ANY
WAIVER AND WAIVER AND WAIVER AND WAIVER AND
REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT) REIMBURSEMENT)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation
Fund........................... 0.63% 0.68% 0.63% 0.68%
AIM V.I. Diversified Income
Fund........................... 0.60% 0.80% 0.60% 0.80%
AIM V.I. Global Utilities Fund... 0.65% 1.28% 0.65% 1.28%
AIM V.I. Government Securities
Fund........................... 0.50% 0.87% 0.50% 0.87%
AIM V.I. Growth Fund............. 0.65% 0.73% 0.65% 0.73%
AIM V.I. Growth & Income Fund.... 0.63% 0.69% 0.63% 0.69%
AIM V.I. International Equity
Fund........................... 0.75% 0.93% 0.75% 0.93%
AIM V.I. Money Market Fund....... 0.40% 0.59% 0.40% 0.59%
AIM V.I. Value Fund.............. 0.62% 0.70% 0.62% 0.70%
</TABLE>
Pursuant to the Advisory Agreement, AIM receives a fee from each of the
Aggressive Growth Fund, the Balanced Fund, the Capital Development Fund and the
High Yield Fund calculated at the following annual rates to the average daily
net assets of each Fund for the calendar year computed in the manner used for
the determination of the net asset value of shares of each Fund:
AIM V.I. AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $150 million.......................................... 0.80%
Over $150 million........................................... 0.625%
</TABLE>
AIM V.I. BALANCED FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $150 million.......................................... 0.75%
Over $150 million........................................... 0.50%
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $350 million.......................................... 0.75%
Over $350 million........................................... 0.625%
</TABLE>
AIM V.I. HIGH YIELD FUND
<TABLE>
<CAPTION>
ANNUAL
NET ASSETS RATE
---------- ------
<S> <C>
First $200 million.......................................... 0.625%
Next $300 million........................................... 0.55%
Next $500 million........................................... 0.50%
Amount over $1 billion...................................... 0.45%
</TABLE>
AIM 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. AIM provides various administrative services to the Company
pursuant to an Administrative Services Agreement. AIM provides the services of a
principal financial officer of the Company, who maintains the financial accounts
and books and records of the Company and the Funds, including the review of
daily net asset value calculations and the preparation of tax returns. The Funds
22
<PAGE> 23
reimburse AIM for expenses incurred by AIM or its subsidiaries in providing
these services. AIM also provides, or assures that Participating Insurance
Companies will provide, certain services implementing the Company's funding
arrangements with Participating Insurance Companies. These services include:
establishment of compliance procedures; negotiation of participation agreements;
preparation of prospectuses, financial reports and proxy statements for existing
Contractowners; maintenance of master accounts; facilitation of purchases and
redemptions requested by Contractowners; distribution to existing Contractowners
of copies of prospectuses, proxy materials, periodic Fund reports and other
materials; maintenance of records; and Contractowner services and communication.
Effective May 1, 1998, the Funds reimburse AIM for its costs in providing, or
assuring that Participating Insurance Companies provide, these services,
currently in an amount up to 0.25% of the average net asset value of each Fund
in excess of the net asset value of each Fund on April 30, 1998. However, AIM
does not currently seek reimbursement of (i) the cost of the first three
services listed above and (ii) the cost of any other service in excess of the
amount charged by Participating Insurance Companies. The Funds listed below
reimbursed AIM for its costs in providing administrative services to the Funds,
for the fiscal year ended December 31, 1997, as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF AVERAGE
NET ASSETS
----------
<S> <C>
AIM V.I. Capital Appreciation Fund.......................... 0.01%
AIM V.I. Diversified Income Fund............................ 0.07%
AIM V.I. Global Utilities Fund.............................. 0.29%
AIM V.I. Government Securities Fund......................... 0.14%
AIM V.I. Growth Fund........................................ 0.02%
AIM V.I. Growth & Income Fund............................... 0.01%
AIM V.I. International Equity Fund.......................... 0.03%
AIM V.I. Money Market Fund.................................. 0.06%
AIM V.I. Value Fund......................................... 0.01%
</TABLE>
DISTRIBUTOR. The Company has entered into a master distribution agreement,
dated February 28, 1997, (the "Distribution Agreement") 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 100, 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
Participating Insurance Companies to fund variable annuity contracts (the
"Contracts") and variable life insurance policies ("Policies"). Each separate
account contains divisions, each of which corresponds to a Fund in the Company.
Net purchase payments under the Contracts are placed in one or more of the
divisions of the relevant separate account and the assets of each division are
invested in the shares of the Fund which corresponds to that division. Each
separate account purchases and redeems shares of these Funds for its divisions
at net asset value without sales or redemption charges. Currently several
insurance company separate accounts invest in the Funds.
The Company, in the future, may offer the shares of its Funds to certain
pension and retirement plans ("Plans") qualified under the Internal Revenue
Code. The relationships of Plans and Plan participants to the Fund would be
subject, in part, to the provisions of the individual plans and applicable law.
Accordingly, such relationships could be different from those described in this
Prospectus for separate accounts and owners of Contracts and Policies, in such
areas, for example, as tax matters and voting privileges.
Each Fund ordinarily effects orders to purchase or redeem its shares that are
based on transactions under Policies or Contracts (e.g., purchase or premium
payments, surrender or withdrawal requests, etc.) at the Fund's net asset value
per share next computed on the day on which the separate account processes such
transactions. Each Fund effects orders to purchase or redeem its shares that are
not based on such transactions at the Fund's net asset value per share next
computed on the day on which the Fund receives the orders.
Please refer to the appropriate separate account prospectus related to your
Contract for more information regarding the Contract.
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. If a material irreconcilable conflict arises between separate accounts
(or Plans), a separate account (or Plan) may be required to withdraw its
participation in a Fund. If it becomes necessary for any separate account (or
Plan) to replace shares of a Fund with another investment, the Fund may have to
liquidate portfolio securities on a disadvantageous basis. At the same time, the
Company and the Participating Insurance Companies
23
<PAGE> 24
(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 to identify any material irreconcilable conflict
that may possibly arise and to determine what action, if any, should be taken to
remedy or eliminate the conflict.
- --------------------------------------------------------------------------------
FUTURE FUND CLOSURE
Due to the limited availability of common stocks of small capitalized
companies that meet the AIM's investment criteria for the Aggressive Growth
Fund, the Fund will be closed to new participants as soon as reasonably
practicable when the Fund achieves a size in assets under management of $200
million. To the extent that the Fund is closed, participants who maintain open
accounts in the Fund will be able to continue to make additional investments in
the Fund.
- --------------------------------------------------------------------------------
DETERMINATION OF NET ASSET VALUE
The net asset value per share (or share price) of each of the Funds will be
determined as of the close of regular trading of the New York Stock Exchange
("NYSE") (generally 4:00 p.m. Eastern Time) on each "business day of the Fund."
In the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a
particular day, the net asset value of a Fund share is determined as of the
close of the NYSE on such day. For purposes of determining net asset value per
share, futures and options contracts generally will be valued 15 minutes after
the close of trading of the NYSE. A "business day of a Fund" is any day on which
the NYSE is open for business. It is expected that the NYSE will be closed
during the next twelve months on Saturdays and Sundays and on the observed
holidays of New Year's Day, Martin Luther King, Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The net asset value per share of a Fund is determined by
subtracting the liabilities (e.g., the expenses) of the Fund from the assets of
the Fund and dividing the result by the total number of shares outstanding of
such Fund. The determination of a Fund's net asset value per share is made in
accordance with generally accepted accounting principles.
VALUATION OF INVESTMENTS OF ALL FUNDS EXCEPT THE MONEY MARKET FUND. Among
other items, a Fund's liabilities include accrued expenses and dividends
payable, and its total assets include portfolio securities valued at their
market value as well as income accrued but not received. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by or under the supervision of the Company's officers
and in accordance with methods which are specifically authorized by the Board of
Directors of the Company. Short-term obligations with maturities of 60 days or
less are valued at amortized cost as reflecting fair value.
VALUATION OF THE MONEY MARKET FUND'S INVESTMENTS. The Money Market Fund uses
the amortized cost method of valuing the securities held by the Fund and rounds
the Fund's per share net asset value to the nearest whole cent; therefore, it is
anticipated that the net asset value of the shares of the Fund will remain
constant at $1.00 per share. However, the Company can give no assurance that the
Fund can maintain a $1.00 net asset value per share.
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.
24
<PAGE> 25
- --------------------------------------------------------------------------------
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. Aggressive Growth Fund............................. annually annually
AIM V.I. Balanced Fund...................................... annually annually
AIM V.I. Capital Appreciation Fund.......................... annually annually
AIM V.I. Capital Development Fund........................... annually annually
AIM V.I. Diversified Income Fund............................ annually annually
AIM V.I. Global Utilities Fund.............................. annually annually
AIM V.I. Government Securities Fund......................... annually annually
AIM V.I. Growth Fund........................................ annually annually
AIM V.I. Growth & Income Fund............................... annually annually
AIM V.I. High Yield Fund.................................... annually annually
AIM V.I. International Equity Fund.......................... annually annually
AIM V.I. Money Market Fund.................................. daily daily
AIM V.I. 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.
- --------------------------------------------------------------------------------
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 an open-end, series, management investment company. The Company
currently consists of thirteen separate portfolios (i.e., the Funds).
The authorized capital stock of the Company consists of 3,500,000,000 shares
of common stock with a par value of $.001 per share, of which 250,000,000 shares
are classified AIM V.I. AGGRESSIVE GROWTH FUND shares, 250,000,000 shares are
classified AIM V.I. BALANCED FUND shares, 250,000,000 shares are classified AIM
V.I. CAPITAL APPRECIATION FUND shares, 250,000,000 shares are classified AIM
V.I. CAPITAL DEVELOPMENT FUND shares, 250,000,000 shares are classified AIM V.I.
DIVERSIFIED INCOME FUND shares, 250,000,000 shares are classified AIM V.I.
GLOBAL UTILITIES FUND shares, 250,000,000 shares are classified
25
<PAGE> 26
AIM V.I. GOVERNMENT SECURITIES FUND shares, 250,000,000 are classified AIM V.I.
GROWTH FUND shares, 250,000,000 shares are classified AIM V.I. GROWTH & INCOME
FUND shares, 250,000,000 shares are classified AIM V.I. HIGH YIELD FUND shares,
250,000,000 shares are classified AIM V.I. INTERNATIONAL EQUITY FUND shares,
250,000,000 shares are classified AIM V.I. MONEY MARKET FUND shares, 250,000,000
shares are classified AIM V.I. VALUE FUND shares, and the balance of which are
unclassified.
The shares of each Fund have equal rights with respect to voting, except that
(i) the holders of shares of a particular Fund voting together will have the
exclusive right to vote on matters (such as advisory fees) pertaining solely to
that Fund, and (ii) the holders of shares of a particular Fund will have the
exclusive right to vote on matters pertaining to distribution plans, if any such
plans are adopted, relating solely to such Fund. Shareholders of the Funds do
not have cumulative voting rights.
The Company understands that insurance company separate accounts owning shares
of the Funds will vote their shares in accordance with 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 February 2, 1998, IDS Life Insurance Company, through its separate
accounts, owned more than 25 percent of the shares of the Growth and Income
Fund, and, therefore, could be deemed to "control" such Fund, as that term is
defined in the Investment Company Act of 1940. As of February 2, 1998,
Connecticut General Life Insurance Company, through its separate accounts, owned
more than 25 percent of the shares of each of the Funds (except the Aggressive
Growth Fund, the Balanced Fund, the Capital Development Fund, the High Yield
Fund and the Growth and Income Fund) and, therefore, could be deemed to
"control" each Fund, as that term is defined in the Investment Company Act of
1940. As of February 2, 1998, Glenbrook Life & Annuity Company, through its
separate accounts, owned more than 25 percent of the shares of the Diversified
Income Fund and the Global Utilities Fund, and, therefore, could be deemed to
"control" each Fund, as that term is defined in the Investment Company Act of
1940. As explained above, however, insurance company separate accounts generally
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.
As of May 1, 1998, A I M Advisors, Inc. owned more than 25% of the issued and
outstanding shares of the Aggressive Growth Fund, the Balanced Fund, the Capital
Development Fund and the High Yield Fund, and therefore could be deemed to
"control" each Fund as that term is defined in the 1940 Act. It is anticipated
that after commencement of the public offering of each Fund's shares, A I M
Advisors, Inc. will cease to control each Fund for purposes of the 1940 Act.
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.
YEAR 2000 COMPLIANCE PROJECT. In providing services to the Funds, AIM
Management and its subsidiaries rely on both internal software systems as well
as external software systems provided by third parties. Many software systems in
use today are unable to distinguish between the year 2000 from the year 1900.
This defect if not cured will likely adversely affect the services that AIM
Management, its subsidiaries and other service providers provide the Funds and
their shareholders.
To address this issue, AIM Management and its subsidiaries, together with
independent technology consultants, are undertaking a comprehensive Year 2000
Compliance Project (the "Project"). The Project consists of three phases, namely
(i) inventorying every software application in use at AIM Management and its
subsidiaries, as well as remote, third party software systems on which AIM
Management and its subsidiaries rely, (ii) identifying those applications that
may not function properly after December 31, 1999, and (iii) correcting and
subsequently testing those applications that may not function properly after
December 31, 1999. Phases (i) and (ii) are complete and phase (iii) has
commenced. The Project is scheduled to be completed during the fourth quarter of
1998. Software applications acquired by AIM Management and its subsidiaries
after completion of the Project will be reviewed to confirm Year 2000 compliance
upon installation.
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 SEC 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 SEC.
Copies of the registration statement, including items omitted from this
Prospectus, may be obtained from the SEC by paying the charges prescribed under
its rules and regulations.
26
<PAGE> 27
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF CORPORATE BOND RATINGS
Investment grade debt securities are those rating categories indicated by an
asterisk (*).
Moody's Investors Service, Inc.'s corporate bond ratings are as follows:
*Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
*Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
*A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
*Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Standard and Poor's Ratings Services classifications are as follows:
*AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
*AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
*A -- Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
*BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.
BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
A-1
<PAGE> 28
BB -- Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB --" rating.
B -- Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB --" rating.
CCC -- Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B --" rating.
CC -- The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.
C -- The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC --" debt rating. The "C" rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 -- The rating "C1" is reserved for income bonds on which no interest is
being paid.
D -- Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal or principal payments are not made on the
date due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or Minus (-): The rating from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
Duff & Phelps fixed-income ratings are as follows:
*AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
*AA+, AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
*A+, A, A- -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.
*BBB+, BBB, BBB- -- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in quality rating within this category or
into a higher or lower quality rating grade.
CCC -- Well below investment grade securities. May be in default or have
considerable uncertainty as to timely payment of interest, preferred dividends
and/or principal. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
Fitch Investors Service, Inc.'s bond ratings are as follows:
*AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
*AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+".
*A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
A-2
<PAGE> 29
*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> 30
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> 31
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> 32
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 rate
master demand note is periodically redetermined according to a prescribed
formula. Although there is no secondary market in master demand notes, the payee
may demand payment of the principal amount of the note on relatively short
notice. All variable rate master demand notes acquired by the Money Market Fund
will be payable within a prescribed notice period not to exceed seven days.
4. REPURCHASE AGREEMENTS.
A repurchase agreement is a contractual undertaking whereby the seller of
securities (limited to U.S. Government securities, including securities issued
or guaranteed by the U.S. Treasury or the various agencies and instrumentalities
of the U.S. Government) agrees to repurchase the securities at a specified price
on a future date determined by negotiations.
5. TAXABLE MUNICIPAL SECURITIES.
Taxable municipal securities are debt securities issued by or on behalf of
states and their political subdivisions, the District of Columbia, and
possessions of the United States, the interest on which is not exempt from
federal income tax.
C-1
<PAGE> 33
STATEMENT OF
ADDITIONAL INFORMATION
A I M V A R I A B L E I N S U R A N C E F U N D S, I N C.
11 GREENWAY PLAZA
SUITE 100
HOUSTON, TX 77046-1173
(713) 626-1919
AIM V.I. AGGRESSIVE GROWTH FUND
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH AND INCOME FUND
AIM V.I. INTERNATIONAL EQUITY FUND
AIM V.I. BALANCED FUND
AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GROWTH FUND
AIM V.I. HIGH YIELD 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, 1998
RELATING TO PROSPECTUS DATED: MAY 1, 1998
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRODUCTION.........................................................................1
GENERAL INFORMATION ABOUT THE FUNDS..................................................1
The Company and Its Shares..................................................1
PERFORMANCE..........................................................................2
Total Return Calculations...................................................2
Historical Portfolio Results................................................2
Yield Information...........................................................3
PORTFOLIO TRANSACTIONS AND BROKERAGE.................................................4
General Brokerage Policy....................................................4
Section 28(e) Standards.....................................................6
Portfolio Turnover..........................................................8
Brokerage Commissions Paid..................................................8
INVESTMENT PROGRAMS..................................................................8
Money Market Obligations....................................................8
Repurchase Agreements.......................................................9
Lending of Portfolio Securities.............................................9
Reverse Repurchase Agreements..............................................10
Delayed Delivery Agreements................................................10
When-Issued Securities.....................................................10
Special Situations.........................................................11
Warrants ..................................................................11
Short Sales................................................................11
Rule 144A Securities.......................................................11
Utilities Industry.........................................................12
Foreign Exchange Transactions..............................................13
HEDGING AND OTHER INVESTMENT TECHNIQUES.............................................13
INVESTMENT RESTRICTIONS.............................................................15
Fundamental Restrictions...................................................15
Non-fundamental Restrictions...............................................16
MANAGEMENT..........................................................................17
Directors and Officers.....................................................17
Remuneration of Directors................................................21
AIM Funds Retirement Plan for Eligible Directors/Trustees................22
Deferred Compensation Agreements.........................................23
Investment Advisory and Administrative Services Agreements.................24
The Distribution Agreement.................................................28
DETERMINATION OF NET ASSET VALUE....................................................29
DIVIDENDS, DISTRIBUTIONS AND TAX MATTERS............................................30
MISCELLANEOUS INFORMATION...........................................................31
</TABLE>
i
<PAGE> 35
<TABLE>
<S> <C>
Audit Reports..............................................................31
Legal Matters..............................................................31
Custodian and Transfer Agent...............................................31
Principal Holders of Securities............................................31
Other Information..........................................................35
FINANCIAL STATEMENTS................................................................FS
</TABLE>
ii
<PAGE> 36
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, 1998
(referred to collectively as the "Prospectuses" and separately as a
"Prospectus"), which relate to one or more of the thirteen series portfolios of
the Company (referred to collectively as the "Funds" and separately as a
"Fund"). One or more of the Company's thirteen Funds may not be available under
a particular variable annuity contract or variable life insurance policy.
Accordingly, this Statement of Additional Information may contain information
that is not relevant to the investment options under such a contract or policy.
Additional copies of the Prospectuses of the Funds available under a contract or
policy and this Statement of Additional Information may be obtained without
charge by contacting the principal distributor of the Funds' shares, A I M
Distributors, Inc. ("AIM Distributors"), P.O. Box 4739, Houston, TX 77210-4739
or by calling (713) 626-1919. Investors must receive a Prospectus before they
invest. To the extent that this Statement of Additional Information contains
information concerning a Fund that is not available under a contract or policy,
the Statement of Additional Information does not constitute the offer of the
shares of that Fund.
This Statement of Additional Information is intended to furnish
prospective investors with additional information concerning the Funds. Some of
the information required to be in this Statement of Additional Information is
also included in the Funds' current Prospectus and, in order to avoid
repetition, reference will be made to sections of the Prospectus. Additionally,
the Prospectus and this Statement of Additional Information omit certain
information contained in the Registration Statement filed with the SEC. Copies
of the Registration Statement, including items omitted from the Prospectus and
this Statement of Additional Information, may be obtained from the SEC by paying
the charges prescribed under its rules and regulations.
GENERAL INFORMATION ABOUT THE FUNDS
THE COMPANY AND ITS SHARES
The Company was organized on January 22, 1993, as a Maryland
corporation, and is registered with the SEC as an open-end, series, management
investment company. The Company currently consists of thirteen separate Funds as
follows: the AIM V.I. Aggressive Growth Fund ("Aggressive Growth Fund"), the AIM
V.I. Balanced Fund ("Balanced Fund"), the AIM V.I. Capital Appreciation Fund
("Capital Appreciation Fund"), the AIM V.I. Capital Development Fund ("Capital
Development Fund"), the AIM 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 Growth Fund ("Growth Fund"), the AIM V.I. Growth
and Income Fund ("Growth and Income Fund"), the AIM V.I. High Yield Fund ("High
Yield Fund), the AIM V.I. International Equity Fund ("International Fund"), the
AIM V.I. Money Market Fund ("Money Market Fund"), the AIM V.I. Value Fund
("Value Fund").
Each share of a Fund is entitled to one vote, to participate equally in
dividends and distributions declared by the Board of Directors with respect to
the Fund and, upon liquidation of the Fund, to participate in its proportionate
share of the net assets allocable to the Fund remaining after satisfaction of
outstanding liabilities of the Fund. Fund shares are fully paid, non-assessable
and fully transferable when issued and have no preemptive, conversion or
exchange rights. Fractional shares have proportionately the same rights,
including voting rights, as are provided for a full share.
Shareholders of the Funds do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all Funds
voting together for election of directors may elect all of the members of the
Board of Directors of the Company. In such event, the remaining holders cannot
elect any directors of the Company. See "General Information" in the Prospectus.
1
<PAGE> 37
PERFORMANCE
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising reflect all aspects of the
applicable Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in such Fund's net asset value per
share (NAV) over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical investment in a
particular Fund over a stated period, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline in value had been constant over the period. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that a Fund's performance is not constant over time,
but changes from year to year, and that average annual returns do not represent
the actual year-to-year performance of such Fund.
In addition to average annual returns, each Fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, and/or a series of redemptions, over
any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their contributions to total
return. Total returns and other performance information may be quoted
numerically or in a table, graph, or similar illustration.
HISTORICAL PORTFOLIO RESULTS
The Funds' (except the Aggressive Growth Fund, the Balanced Fund, the
Capital Development Fund and the High Yield Fund) average annual and cumulative
total return for the fiscal year ended December 31, 1997 and average annual and
cumulative total returns for the period May 5, 1993 (commencement of operations)
through December 31, 1997, were as follows:
<TABLE>
<CAPTION>
Since
Inception
---------------------
Year Ended Average
December 31, Annual Cumulative
1997 Return Return
------------ ------- ----------
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 13.50% 18.65% 121.79%
AIM V.I. Diversified Income Fund 9.39% 8.22% 44.44%
AIM V.I. Global Utilities Fund* 21.63% 15.15% 67.72%
AIM V.I. Government Securities Fund 8.16% 5.35% 27.45%
AIM V.I. Growth Fund 26.87% 18.20% 117.90%
AIM V.I. Growth and Income Fund* 25.72% 21.11% 101.84%
AIM V.I. International Equity Fund 6.94% 12.91% 76.06%
AIM V.I. Money Market Fund 5.14% 4.49% 22.67%
AIM V.I. Value Fund 23.69% 19.76% 131.55%
</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.
2
<PAGE> 38
The total returns quoted above do not reflect charges levied at the
insurance company separate account level. For a complete description of the
applicable charges, see the fee table in the prospectus for the appropriate
insurance company separate account.
Each Fund's performance may be compared in advertising to the
performance of other mutual funds in general, or of particular types of mutual
funds, especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc., Morningstar, Inc. and other
independent services which monitor the performance of mutual funds. The Funds
may also advertise mutual fund performance rankings which have been assigned to
each respective Fund by such monitoring services.
Each Fund's performance may also be compared in advertising to the
performance of comparative benchmarks such as the Consumer Price Index ("CPI"),
the Standard & Poor's ("S&P") 500 Stock Index, and fixed-price investments such
as bank certificates of deposit and/or savings accounts.
The International Fund's performance may also be compared in
advertising to performance of comparative benchmarks such as The Financial
Times--Actuaries World Indices (a wide range of comprehensive measures of stock
price performance for the major stock markets and regional areas), Morgan
Stanley Capital International Indices, including the EAFE Index, Pacific Basin
Index and Pacific Ex Japan Index (a widely recognized series of indices in
international market performance), and indices of stocks comparable to those in
which the Fund invests.
Each Fund's advertising may from time to time include historical
discussions of general economic conditions such as inflation rates and changes
in the stock market, foreign and domestic interest rates and foreign and
domestic political circumstances and events.
In addition, each Fund's long-term performance may be described in
advertising in relation to historical, political and/or economic events.
From time to time, the Funds' sales literature and/or advertisements
may discuss generic topics pertaining to the mutual fund industry. This
includes, but is not limited to, literature addressing general information about
mutual funds, variable annuities, variable life insurance, dollar-cost
averaging, stocks, bonds, money markets, certificates of deposit, retirement,
retirement plans, asset allocation, tax-free investing, college planning and
inflation.
YIELD INFORMATION
Quotations of yield on the Money Market Fund may appear from time to
time in the financial press and in advertisements.
The Money Market Fund's yield is its investment income, less expenses,
expressed as a percentage of assets on an annualized basis for an identified
period, usually seven days. The yield is expressed as a simple annualized yield
and as a compounded effective yield. The yield does not reflect the fees and
charges imposed on the assets of the insurance company separate account.
The standard formulas prescribed by the SEC for calculating yield and
effective yield for the Money Market Fund are described below:
The simple annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities, unrealized
appreciation and depreciation, and income other than investment income) in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, dividing the net change in account value by the
value of the account at the beginning 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
3
<PAGE> 39
the account during the period, dividends declared on such additional shares
during the period, and expenses accrued during the period.
The compounded effective yield is computed by determining the
unannualized base period return, adding one to the base period return, raising
the sum to a power equal to 365 divided by the number of days in the period, and
subtracting one from the result. Historical yields are not necessarily
indicative of future yields. Rates of return will vary as interest rates and
other conditions affecting money market instruments change. Yields also depend
on the quality, length of maturity and type of instruments in the Fund's
portfolio and the Fund's operating expenses. Quotations of yield will be
accompanied by information concerning the average weighted maturity of the Fund.
Comparison of the quoted yields of various investments is valid only if yields
are calculated in the same manner and for identical limited periods. When
comparing the yield for a Fund with yields quoted with respect to other
investments, shareholders should consider (a) possible differences in time
periods, (b) the effect of the methods used to calculate quoted yields, (c) the
quality and average-weighted maturity of portfolio investments, expenses,
convenience, liquidity and other important factors, and (d) the taxable or
tax-exempt character of all or part of dividends received.
The simple annualized yield and compounded effective yield for the
Money Market Fund for the 7 days ended December 31, 1997 were 5.29% and 5.43%,
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
4
<PAGE> 40
on stock exchanges, or traded in OTC markets in the United States or Europe, as
the case may be. ADRs, like other securities traded in the United States, will
be subject to negotiated commission rates.
The Funds are not under any obligation to deal with any broker or group
of brokers in the execution of transactions in portfolio securities. Brokers who
provide supplemental investment research to AIM may receive orders for
transactions by a Fund. Information so received will be in addition to and not
in lieu of the services required to be performed by AIM under its agreements
with the Fund, and the expenses of AIM will not necessarily be reduced as a
result of the receipt of such supplemental information. Certain research
services furnished by broker-dealers may be useful to AIM in connection with its
services to other advisory clients, including the other mutual funds advised by
AIM (collectively with the Funds, the "AIM Funds"). Also, a Fund may pay a
higher price for securities or higher commissions in recognition of research
services furnished by broker-dealers.
AIM may from time to time determine target levels of commission
business for AIM to transact with various brokers on behalf of its clients
(including the Funds) over a certain time period. The target levels will be
determined based upon the following factors, among others: (1) the execution
services provided by the broker; (2) the research services provided by the
broker; (3) certain products and/or services provided to the Funds, the cost of
which will be included in Fund expenses reported to shareholders; and (4) the
broker's attitude toward an interest in mutual funds in general and in the Funds
and the other AIM Funds in particular. No specific formula will be used in
connection with any of the foregoing considerations in determining the target
levels. However, if a broker has indicated a certain level of desired
commissions in return for certain research services provided by the broker, this
factor will be taken into consideration by AIM.
Subject to the overall objective of obtaining best price and execution
for the Funds, AIM may also consider sales of shares by broker-dealers of each
Fund and of the other AIM Funds as well as sales of variable annuity contracts
("Contracts") and variable life insurance policies ("Policies") funded through
the Funds ("selling dealers"), as a factor in the selection of broker-dealers to
execute portfolio transactions for a Fund. Such portfolio transactions may be
executed directly by selling dealers or by other broker-dealers with which
selling dealers have clearing arrangements.
AIM will seek, whenever possible, to recapture for the benefit of a
Fund any commissions, fees, brokerage or similar payments paid by the Fund on
portfolio transactions. Normally, the only fees which may be recaptured are the
soliciting dealer fees on the tender of a Fund's portfolio securities in a
tender or exchange offer.
AIM and its affiliates manage several other investment accounts, some
of which may have investment objectives similar to those of the Funds. It is
possible that, at times, identical securities will be appropriate for investment
by one or more of such investment accounts. The position of each account,
however, in the securities of the same issue may vary and the length of time
that each account may choose to hold its investment in the securities of the
same issue may likewise vary. The timing and amount of purchases by each account
will also be determined by its cash position. If the purchase or sale of
securities is consistent with the investment policies of a Fund(s) and one or
more of these accounts is considered at or about the same time. AIM may combine
such transactions, in accordance with applicable laws and regulations, in order
to obtain the best net price and most favorable execution. Simultaneous
transactions could, however, adversely affect the ability of a Fund to obtain
or dispose of the full amount of a security which it seeks to purchase or sell.
These combined transactions, and related brokerage charges, will be
allocated among the Fund(s) and such accounts in a manner consistent with
guidelines and procedures approved by the Company's Board of Directors that are
designed to achieve an equitable manner of allocation. In some cases the
procedure for allocating portfolio transactions among the various investment
accounts advised by AIM could have an adverse effect on the price or amount of
securities available to a Fund. In making such allocations, the main factors
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
5
<PAGE> 41
investment commitments generally held and the judgments of the persons
responsible for recommending the investment.
From time to time, an identical security may be sold by an AIM Fund or
another investment account advised by AIM or A I M Capital Management, Inc.
("AIM Capital") and simultaneously purchased by another investment account
advised by AIM or AIM Capital, when such transactions comply with applicable
rules and regulations and are deemed consistent with the investment objective(s)
and policies of the investment accounts advised by AIM or AIM Capital.
Procedures pursuant to Rule 17a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") regarding transactions between investment accounts
advised by AIM or AIM Capital have been adopted by the Boards of
Directors/Trustees of the various AIM Funds, including the Company. Although
such transactions may result in custodian, tax or other related expenses, no
brokerage commissions or other direct transaction costs are generated by
transactions among the investment accounts advised by AIM or AIM Capital.
SECTION 28(e) STANDARDS
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
AIM may cause a Fund to pay a broker that provides brokerage and research
services to AIM an amount of commission for effecting a securities transaction
for the Fund in excess of the commission another broker would have charged for
effecting that transaction. To obtain the benefit of Section 28(e), AIM must
make a good faith determination that the commissions paid are "reasonable in
relation to the value of the brokerage and research services provided . . .
viewed in terms of either that particular transaction or [its] overall
responsibilities with respect to the accounts as to which [it] exercises
investment discretion" and that the services provided by a broker provide AIM
with lawful and appropriate assistance in the performance of its investment
decision-making responsibilities. Accordingly, the price to a Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered.
Broker-dealers utilized by AIM may furnish statistical, research and
other information or services which are deemed by AIM to be beneficial to the
Funds' investment programs. Research services received from brokers supplement
AIM's own research (and the research of sub-advisors to other clients of AIM)
and may include the following types of information: statistical and background
information on industry groups and individual companies; forecasts and
interpretations with respect to U.S. and foreign economies, securities markets,
specific industry groups and individual companies; information on political
developments; portfolio management strategies; performance information on
securities and information concerning prices of securities; and information
supplied by specialized services to AIM and to the Company's directors with
respect to the performance, investment activities and fees and expenses of other
mutual funds. Such information may be communicated electronically, orally or in
written form. Research services may also include the providing of equipment used
to communicate research information, the arranging of meetings with management
of companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to AIM since the brokers
utilized by AIM as a group tend to follow a broader universe of securities and
other matters than AIM's staff can follow. In addition, this research provides
AIM with a diverse perspective on financial markets. Research services which are
provided to AIM by brokers are available for the benefit of all accounts managed
or advised by AIM (or by sub-advisors to accounts managed or advised by AIM). In
some cases, the research services are available only from the broker providing
such services. In other cases, the research services may be obtainable from
alternative sources in return for cash payments. AIM is of the opinion that
because the broker research supplements rather than replaces its research, the
receipt of such research does not tend to decrease its expenses, but tends to
improve the quality of its investment advice. However, to the extent that AIM
would have purchased 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.
6
<PAGE> 42
For the fiscal year ended December 31, 1997, 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 $ 50,129 $52,417,583
AIM V. I. Global Utilities Fund $ 414 $ 259,823
AIM V. I. Growth Fund $ 32,840 $39,304,964
AIM V. I. Growth and Income Fund $ 67,602 $80,441,980
AIM V. I. International Equity Fund $ 740 $ 851,690
AIM V. I. Value Fund $ 67,610 $85,609,060
</TABLE>
As of December 31, 1997, the following Funds entered into repurchase
agreements with the following regular brokers, as that term is defined in Rule
10b-1 under the 1940 Act, having the noted market values.
<TABLE>
<CAPTION>
GOLDMAN, SMITH BARNEY,
FUNDS SACHS & CO. INC.
----- ------------- -------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund $ 509,896 $ 18,650,989
AIM V.I. Diversified Fund $ -- $ 966,742
AIM V.I. Global Utilities Fund $ -- $ 3,813,559
AIM V.I. Government Securities Fund $ 1,493,291 $ --
AIM V.I. Growth Fund $ -- $ 33,186,429
AIM V.I. Growth and Income Fund $ -- $ 28,276,446
AIM V.I. International Equity Fund $ -- $ 8,056,299
AIM V.I. Money Market Fund $ 4,744,146 $ 10,000,000
AIM V.I. Value Fund $ -- $102,063,243
</TABLE>
The following information regarding securities acquired by the Funds of
their regular brokers, as defined in Rule 10b-1 under the 1940 Act, is as of
December 31, 1997. AIM V.I. Growth and Income Fund held an amount of common
stock issued by Merrill Lynch & Co., Inc. and Morgan Stanley Group, Inc. having
a market value of $6,564,375 and $9,755,625, respectively. AIM V.I. Capital
Appreciation Fund held an amount of common stock issued by Paine Webber Group,
Inc. having a market value of $1,036,875. AIM V.I. Money Market Fund had entered
into master note agreements with Goldman, Sachs & Co., Merrill Lynch & Co.,
Inc., J. P. Morgan Securities, Inc. and Morgan Stanley Group Inc. having market
values of $2,060,000, $3,000,000, $2,100,000 and $3,000,000, respectively. AIM
V.I. Value Fund held an amount of common stock issued by Merrill Lynch & Co.,
Inc. and Morgan Stanley Group, Inc., having a market value of $7,585,500 and
$5,262,125,
7
<PAGE> 43
respectively. AIM V.I. Growth Fund held an amount of common stock issued by
Merrill Lynch & Co., Inc. and Morgan Stanley Group, Inc. having a market value
of $3,063,375 and $886,875, respectively.
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.
BROKERAGE COMMISSIONS PAID
Brokerage commissions paid by each of the Funds listed below were as
follows for the fiscal years ended December 31, 1997, December 31, 1996, the
eleven months ended December 31, 1995, and for 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, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ 644,279 $ 405,056 $ 400,895 $ 161,528
AIM V.I. Diversified Income Fund $ 2,818 $ 1,670 $ 74,475 $ 17,471
AIM V.I. Global Utilities Fund $ 12,208 $ 16,365 $ 24,107 $ 9,280*
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $ 621,467 $ 578,444 $ 315,627 $ 173,691
AIM V.I. Growth and Income Fund $1,190,597 $ 417,167 $ 177,420 $ 20,436*
AIM V.I. International Equity Fund $ 605,318 $ 557,527 $ 312,071 $ 89,187
AIM V.I. Money Market Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Value Fund $1,503,734 $1,126,384 $ 862,938 $ 362,126
</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 "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"). A First
Tier Security is generally a security that: (i) has received a short-term
rating, or is subject to a guarantee that has received a short-term rating, or,
in either case,
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<PAGE> 44
is issued by an issuer with a short-term rating from the Requisite NRSROs(1) in
the highest short-term rating category for debt obligations; (ii) is an unrated
security that the Fund's investment adviser has determined are of comparable
quality to a rated security described in (i); (iii) is a security issued by a
registered investment company that is a money market fund; or (iv) is a
Government Security.
Subsequent to its purchase by the Fund, an issue of Money Market
Obligations may cease to be a First Tier security. Subject to certain exceptions
set forth in Rule 2a-7, such an event will not require the elimination of the
security from the Fund, but AIM will consider such an event to be relevant in
its determination of whether the Fund should continue to hold the security.
REPURCHASE AGREEMENTS
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
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.
- -----------------
(1) "Requisite NRSRO" shall mean (a) any two nationally recognized statistical
rating organizations that have issued a rating with respect to a security
or class of debt obligations of an issuer, or (b) if only one NRSRO has
issued a rating with respect to such security or issuer at the time the
fund acquires the security; that NRSRO. At present the NRSROs are:
Standard & Poor's Corp., Moody's Investors Service, Inc., Thomson
Bankwatch, One, Duff and Phelps, Inc., Fitch Investors Services, Inc. and,
with respect to certain types of securities, IBCA Ltd and its subsidiary,
IBCA, Inc. Subcategories or gradations in ratings (such as "+" or "-") do
not count as rating categories.
9
<PAGE> 45
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 liquid assets 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 liquid
assets of a dollar value sufficient at all times to make payment for the delayed
delivery securities. The delayed delivery securities, which will not begin to
accrue interest until the settlement date, will be recorded as an asset of the
Fund and will be subject to the risks of market fluctuation. The purchase price
of the delayed delivery securities is a liability of the Fund until settlement.
If cash is not available to the Fund at the time of settlement, the Fund may be
required to dispose of portfolio securities that it would otherwise hold to
maturity in order to meet its obligation to accept delivery under a delayed
delivery agreement. The Board of Directors has determined that entering into
delayed delivery agreements does not present a materially increased risk of loss
to shareholders, but the Board of Directors may restrict the use of delayed
delivery agreements if the risk of loss is determined to be material or if it
affects the constant net asset value of the Money Market Fund.
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
settlement date segregated liquid assets of a dollar value sufficient at all
times to make payment for the when-issued securities. The securities will be
marked-to-market and additional assets will be segregated if necessary to
maintain adequate coverage of the when-issued commitments.
Securities purchased on a when-issued basis and the securities held in
the Funds' portfolios are subject to changes in market value based upon the
public's perception of the creditworthiness of the issuer and changes in the
level of interest rates (which will generally result in all of those securities
changing in value in the same way, i.e., all those securities experiencing
appreciation when interest rates rise). Therefore, if, in order to achieve
higher interest income, a Fund is to remain substantially fully invested at the
same time that it has purchased securities on a when-issued basis, there will
be a possibility that the market value of the Fund's assets will fluctuate to a
greater degree. Furthermore, when the time comes for the Fund to meet its
obligations under when-issued commitments, the Fund will do so by using
then-available cash flow, by sale of the segregated securities, by the sale of
other securities or,
10
<PAGE> 46
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.
WARRANTS
The Aggressive Growth Fund, the Capital Development Fund and the Growth
and 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.
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 net 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
11
<PAGE> 47
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 net 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.
UTILITIES INDUSTRY
The following is a general description of the particular types of
utilities industries in which the Global Utilities Fund may invest.
Electric Utility Industry. Electric utilities are heavily regulated.
Local rates are subject to the review of state commissions, and sales either
between companies or that cross state lines are subject to review by the Federal
Energy Regulatory Commission. The industry is also subject to regulation by the
SEC under the Public Utility Holding Company Act of 1935. In addition, companies
constructing or operating nuclear powered generating stations are subject to
extensive regulation by the Nuclear Regulatory Commission.
Electric utility companies are also subject to extensive local
regulation in environmental and site location matters. Future legislation with
regard to the issues of acid rain and toxic and radioactive wastes could have a
significant impact on the manner in which utility companies conduct their
business, and the costs that they incur. Since the late 1970s, investor-owned
utilities have experienced a number of unfavorable regulatory trends, including
increased regulatory resistance to price increases and new legislation
encouraging competition.
Electric utilities have recently become subject to competition in
varying degrees. This competition can have the effect of decreasing revenues and
profit margins.
Natural Gas Industry. The natural gas industry is comprised primarily
of many small distribution companies and a few large interstate pipeline
companies. The Public Utility Holding Company Act of 1935 has generally acted as
a bar to the consolidation of pipeline and distribution companies. Regulation of
these companies is similar to that of electric companies. The performance of
natural gas utilities may also be substantially affected by fluctuations in
energy prices. Competition in the natural gas industry has resulted in the
consolidation of the industry.
Communications Industry. Most of the communications industry capacity
is concentrated in the hands of a few very large publicly-held companies, unlike
the situation in the electric and gas industries. Significant risks for the
investor to overcome still exist, however, including risk relating to pricing at
marginal versus embedded cost. New entrants may have lower costs of material due
to newer technologies or lower standards of reliability than those heretofore
imposed by American Telephone & Telegraph ("AT&T") on the industry. Accordingly,
the marginal cost of incremental service is much lower than the costs embedded
in an existing network. Communications companies are not subject to the Public
Utility Holding Company Act of 1935.
Interstate communications service may be subject to Federal
Communications Commission regulation. Local service may be regulated by the
states. In addition, AT&T and its former subsidiaries are still subject to
judicial review pursuant to the settlement of the antitrust case brought against
them by the Department of Justice.
Water Utility Industry. The water utility industry is composed of
regulated public utilities that are involved in the distribution of drinking
water to densely populated areas. The industry is geographically diverse and
subject to the same rate base and rate of return regulations as are other public
utilities. Demand for water is most heavily influenced by the local weather,
population growth in the service area and new construction. Supplies of clean,
drinkable water are limited and are primarily a function of the amount of past
rainfall.
12
<PAGE> 48
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.
FOREIGN EXCHANGE TRANSACTIONS
Purchases and sales of foreign securities are usually made with foreign
currencies, and consequently the Funds (except the Government Fund and the Money
Market Fund) may from time to time hold cash balances in the form of foreign
currencies and multinational currency units. Such foreign currencies and
multinational currency units will usually be acquired on a spot (i.e. cash)
basis at the spot rate prevailing in foreign exchange markets and will result in
currency conversion costs to the Fund. A Fund attempts to purchase and sell
foreign currencies on as favorable a basis as practicable; however, some price
spread on foreign exchange transactions (to cover service charges) may be
incurred, particularly when the Fund changes investments from one country to
another, or when U.S. Dollars are used to purchase foreign securities. Certain
countries could adopt policies which would prevent the Fund from transferring
cash out of such countries, and the Fund may be affected either favorably or
unfavorably by fluctuations in relative exchange rates while the Fund holds
foreign currencies.
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 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.
13
<PAGE> 49
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.
The Fund, for hedging purposes, may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
Fund's overall position. For example, the Fund may purchase a put option and
write a covered call option on the same underlying instrument, in order to
construct a combined position whose risk and return characteristics are similar
to selling a futures contract. This technique, called a "collar," enables the
Fund to offset the cost of purchasing a put option with the premium received
from writing the call option. However, by selling the call option, the Fund
gives up the ability for potentially unlimited profit from the put option.
Another possible combined position would involve writing a covered call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written covered call option in the event of a substantial
price increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
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.
14
<PAGE> 50
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 except that each Fund may purchase securities of other investment
companies to the extent permitted by applicable law or exemptive order;
(2) act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, the fund may be deemed to be an
underwriter for purposes of the 1933 Act;
(3) purchase or sell real estate or any interest therein, except that
each Fund may, as appropriate and consistent with its investment policies and
other investment restrictions, invest in securities of corporate or governmental
entities secured by real estate or marketable interests therein or securities of
issuers that engage in real estate operations or interests therein, and may hold
and sell real estate acquired as a result of ownership in such securities;
15
<PAGE> 51
(4) purchase or sell commodity contracts, except that each Fund may, as
appropriate and consistent with its investment policies and other investment
restrictions, enter into futures contracts on securities, securities indices and
currency, options on such futures contracts, forward foreign currency exchange
contracts, forward commitments and repurchase agreements;
(5) make loans, except for collateralized loans of portfolio securities
in an amount not exceeding 33 1/3% of the applicable Fund's total assets. This
restriction does not prevent a Fund from purchasing government obligations,
short-term commercial paper, or publicly traded debt, including bonds, notes,
debentures, certificates of deposit, bankers acceptances and equipment trust
certificates, nor does this restriction apply to loans made under insurance
policies, or through entry into repurchase agreements, to the extent they may be
viewed as loans;
(6) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total assets
at market value at the time of each investment, except that the Money Market
Fund may invest up to 100% of its assets in obligations issued by banks. This
limitation does not apply to the Global Utilities Fund or to investments in
obligations of the U.S. Government or any of its agencies or instrumentalities
but will apply to foreign government obligations unless the Securities and
Exchange Commission permits their exclusion;
(7) issue senior securities, except to the extent permitted by the 1940
Act, including permitted borrowings;
(8) purchase securities of an issuer (other than investments in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or except that each Fund may purchase securities of other
investment companies to the extent permitted by applicable law or exemptive
order), if as a result with respect to 75% of the value of the Fund's total
assets, taken at market value, (i) more than 5% of the Fund's total assets taken
at market value would be invested in the securities of such issuer, except that
up to 25% of the Fund's total assets may be invested in securities issued or
guaranteed by any foreign government or its agencies or instrumentalities, or
(ii) such purchase would at the time result in more than 10% of the outstanding
voting securities of such issuer being held by the Fund. As a matter of
operating policy, the Money Market Fund will invest no more than 5% of the value
of that Fund's total assets in securities, other than U.S. Government securities
of any one issuer, except that the Money Market Fund may invest up to 25% of its
total assets in First Tier Securities (as defined in Rule 2a-7 under the 1940
Act) of a single issuer for a period of up to three business days after the
purchase of such security. This restriction does not apply to the Global
Utilities Fund; and
(9) Each Fund may, not withstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a single
open-end management investment company with substantially the same fundamental
investment objectives, policies and limitations as that Fund.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to all of the Funds but are
not fundamental. They may be changed for any Fund without approval of that
Fund's voting securities.
(1) None of the Funds will invest more than 15% (10% for the Money
Market Fund) of its assets in securities restricted as to disposition under
federal securities laws, or securities otherwise considered illiquid or not
readily marketable, including repurchase agreements having a maturity of more
than seven days.
(2) None of the Funds will purchase or retain the securities of any
issuer if, to the knowledge of AIM, those officers and Directors of the Company,
its adviser or distributor owning individually more than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer.
(3) The Company does not currently intend to invest all of the assets
of any Fund in the securities of a single open-end management investment company
with the same fundamental investment objectives, policies and limitations as
that Fund.
16
<PAGE> 52
(4) The Fund may not invest in securities issued by other investment
companies except as part of a merger, reorganization or other acquisition and
except to the extent permitted by (i) the 1940 Act, as amended from time to
time, (ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.
MANAGEMENT
DIRECTORS AND OFFICERS
The directors and officers of the Company and their principal
occupations during at least the last five years are set forth below. Unless
otherwise indicated, the address of each director and executive officer is 11
Greenway Plaza, Suite 100, Houston, Texas 77046.
<TABLE>
<CAPTION>
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ------------------------------ --------------- ----------------------------------------
<S> <C> <C>
*CHARLES T. BAUER (78) Director and Chairman of the Board of Directors,
Chairman A I M Management Group Inc., A I M
Advisors, Inc., A I M Capital Management,
Inc., A I M Distributors, Inc., A I M
Fund Services, Inc., and Fund Management
Company; and Vice Chairman and Director,
AMVESCAP PLC.
BRUCE L. CROCKETT (53) Director Director, ACE Limited (insurance company),
906 Frome Lane Formerly, Director, President and Chief
McLean, VA 22102 Executive Officer, COMSAT Corporation and
Chairman, Board of Governors of INTELSAT;
(international communications company).
OWEN DALY II (73) Director Director, Cortland Trust Inc. (investment
Six Blythewood Road company). Formerly, Director, CF & I Steel
Baltimore, MD 21210 Corp., Monumental Life Insurance Company
and Monumental General Insurance
Company; and Chairman of the Board of
Equitable Bancorporation.
EDWARD K. DUNN, JR. (62) Director Chairman of the Board of Directors,
P. O. Box 1477 Mercantile Mortgage Corp.; and Director,
Baltimore, MD 21203 AEGON USA (insurance company).
Formerly, Vice Chairman of the Board
of Directors and President,
Mercantile-Safe Deposit & Trust Co.;
and President, Mercantile Bankshares.
</TABLE>
- ----------
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
17
<PAGE> 53
<TABLE>
<CAPTION>
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ------------------------------ --------------- --------------------------------------------------
<S> <C> <C>
JACK FIELDS (45) Director Chief Executive Officer, Texana Global, Inc.
8810 Will Clayton Parkway (insurance company). Formerly, Member of
Jetero Plaza, Suite E the U.S. House of Representatives.
Humble, TX 77338
**CARL FRISCHLING (60) Director Partner, Kramer, Levin, Naftalis & Frankel
919 Third Avenue (law firm); and Director, ERD Waste, Inc.
New York, NY 10022 (waste management company), Aegis Consumer
Finance (auto leasing company) and Lazard Funds,
Inc. (investment companies). Formerly, Partner,
Reid & Priest (law firm); and, prior thereto,
Partner, Spengler Carlson Gubar Brodsky &
Frischling (law firm).
*ROBERT H. GRAHAM (51) Director and Director, President and Chief Executive
President Officer, A I M Management Group Inc.;
Director and President, A I M Advisors,
Inc.; Director and Senior Vice President,
A I M Capital Management, Inc., A I M
Distributors, Inc., A I M Fund Services,
Inc., and Fund Management Company; Director,
AMVESCAP PLC; and Chairman of the Board
of Directors of AIM Funds Group Canada,
Inc.
</TABLE>
- ----------
** A director who is an "interested person" of the Company as defined in the
1940 Act.
* A director who is an "interested person" of A I M Advisors, Inc. and the
Company as defined in the 1940 Act.
18
<PAGE> 54
<TABLE>
<CAPTION>
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ------------------------------ --------------- --------------------------------------------------
<S> <C> <C>
JOHN F. KROEGER (73) Director Director, Flag Investors International Fund,
37 Pippins Way Inc., Flag Investors Emerging Growth Fund,
Morristown, NJ 07960 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 (55) Director Attorney in private practice in Houston,
6363 Woodway, Suite 825 Texas.
Houston, TX 77057
IAN W. ROBINSON (74) Director Formerly, Executive Vice President and
183 River Drive Chief Financial Officer, Bell Atlantic
Tequesta, FL 33469 Management Services, Inc. (provider of
centralized management services to
telephone companies); Executive Vice
President, Bell Atlantic Corporation
(parent of seven telephone companies);
and Vice President and Chief Financial
Officer, Bell Telephone Company of
Pennsylvania and Diamond State
Telephone Company.
LOUIS S. SKLAR (58) Director Executive Vice President, Development and
Transco Tower, 50th Floor Operations, Hines Interests Limited
2800 Post Oak Blvd. Partnership (real estate development).
Houston, TX 77056
</TABLE>
19
<PAGE> 55
<TABLE>
<CAPTION>
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ------------------------------ --------------- -------------------------------------------
<S> <C> <C>
***JOHN J. ARTHUR (53) Senior Vice Director, Senior Vice President and
President and Treasurer, A I M Advisors, Inc.; and Vice
Treasurer President and Treasurer, A I M Management
Group Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services,
Inc., and Fund Management Company.
GARY T. CRUM (50) Senior Vice Director and President, A I M Capital
President Management, Inc.; Director and Senior Vice
President, A I M Management Group Inc.
and A I M Advisors, Inc.; and Director,
A I M Distributors, Inc. and AMVESCAP
PLC.
***CAROL F. RELIHAN (43) Senior Vice Director, Senior Vice President, General
President and Counsel and Secretary, A I M Advisors, Inc.;
Secretary Vice President, General Counsel and
Secretary, A I M Management Group Inc.;
Director, Vice President and General
Counsel, Fund Management Company;
General Counsel and Vice President,
A I M Fund Services, Inc.; and Vice
President, A I M Capital Management, Inc.,
A I M Distributors, Inc.
DANA R. SUTTON (38) Vice President and Vice President and Fund Controller,
Assistant Treasurer A I M Advisors, Inc.; and Assistant Vice
President and Assistant Treasurer, Fund
Management Company.
ROBERT G. ALLEY (49) Vice President Senior Vice President, A I M Capital Management,
Inc.; and Vice President, A I M Advisors, Inc.
STUART W. COCO (42) Vice President Senior Vice President, A I M Capital Management,
Inc. and Vice President, A I M Advisors, Inc.
</TABLE>
- ----------
*** Mr. Arthur and Ms. Relihan are married to each other.
20
<PAGE> 56
<TABLE>
<CAPTION>
Positions Held
NAME, ADDRESS AND AGE with Registrant PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ------------------------------ --------------- ---------------------------------------------------
<S> <C> <C>
MELVILLE B. COX (54) Vice President Vice President and Chief Compliance Officer, A I M
Advisors, Inc., A I M Capital Management, Inc.,
A I M Distributors, Inc., A I M Fund Services, Inc.,
and Fund Management Company.
KAREN DUNN KELLEY (37) Vice President Senior Vice President, A I M Capital Management, Inc.
and Vice President, A I M Advisors, Inc.
JONATHAN C. SCHOOLAR (36) Vice President Senior Vice President, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
</TABLE>
The standing committees of the Board of Directors are the Audit
Committee, the Investments Committee and the Nominating and Compensation
Committee.
The members of the Audit Committee are Messrs. Crockett, Daly, Dunn,
Fields, Frischling, Kroeger (Chairman), Pennock, Robinson and Sklar. 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), Dunn, Fields, Frischling, Kroeger, Pennock, Robinson and Sklar.
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, Dunn, Fields, Kroeger, Pennock (Chairman), Robinson 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 thereof. Each director
of the Company who is not also an officer of the Company is compensated for his
services according to a fee schedule which recognizes the fact that such
director also serves as a director or trustee of certain other investment
companies advised or managed by AIM. Each such director receives a fee,
allocated among the AIM Funds for which he serves as a director or trustee,
which consists of an annual retainer component and a meeting fee component.
21
<PAGE> 57
Set forth below is information regarding compensation paid or accrued
during the fiscal year ended December 31, 1997 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 10,290 67,774 84,000
Owen Daly II 10,290 103,542 84,000
Edward K. Dunn, Jr.(4) 0 0 0
Jack Fields 8,529 0 71,000
Carl Frischling(5) 10,290 96,520 84,000
Robert H. Graham 0 0 0
John F. Kroeger 10,118 94,132 82,500
Lewis F. Pennock 10,290 55,777 84,000
Ian W. Robinson 10,290 85,912 84,000
Louis S. Sklar 10,233 84,370 83,500
</TABLE>
- ----------
(1) The total amount of compensation deferred by all Directors of the
Company during the fiscal year ended December 31, 1997, including
interest earned thereon, was $50,274.
(2) During the fiscal year ended December 31, 1997, the total amount of
expenses allocated to the Company in respect of such retirement
benefits was $15,926. Data reflects compensation estimated for the
calendar year ended December 31, 1997.
(3) Messrs. Bauer, Crockett, Daly, Fields, Frischling, Graham, Kroeger,
Pennock, Robinson and Sklar each serves as a Director or Trustee of a
total of 11 registered investment companies advised by AIM (comprised
of over 50 portfolios). Data reflects compensation estimated for the
calendar year ended December 31, 1997.
(4) Mr. Dunn did not serve as a Director during the calendar year ended
December 31, 1997.
(5) See page 25 for fees paid to Mr. Frischling's law firm.
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
22
<PAGE> 58
affiliates (the "Applicable AIM Funds"). Each eligible director is entitled to
receive an annual benefit from the Applicable AIM Funds commencing on the first
day of the calendar quarter coincident with or following his date of retirement
equal to 75% of the retainer paid or accrued by the Applicable AIM Funds for
such director during the twelve-month period immediately preceding the
director's retirement (including amounts deferred under a separate agreement
between the Applicable AIM Funds and the director) for the number of such
director's years of service (not in excess of 10 years of service) completed
with respect to any of the Applicable AIM Funds. Such benefit is payable to each
eligible director in quarterly installments. If an eligible director dies after
attaining the normal retirement date but before receipt of any benefits under
the Plan commences, the director's surviving spouse (if any) shall receive a
quarterly survivor's benefit equal to 50% of the amount payable to the deceased
director, for no more than ten years beginning the first day of the calendar
quarter following the date of the director's death. Payments under the Plan are
not secured or funded by any AIM Fund.
Set forth below is a table that shows the estimated annual benefits
payable to an eligible director upon retirement assuming a specified level of
compensation and years of service classifications. The estimated credited years
of service as of December 31, 1997 for Messrs. Crockett, Daly, Dunn, Fields,
Frischling, Kroeger, Pennock, Robinson and Sklar are 10, 11, 0, 1, 20, 20, 16,
10 and 8 years, respectively.
ANNUAL BENEFITS UPON RETIREMENT
<TABLE>
<CAPTION>
Number of
Years of
Service With Annual Retainer
the Applicable Paid By All AIM Funds
AIM Funds $80,000
- ------------------ -----------------------
<S> <C>
10 $60,000
9 $54,000
8 $48,000
7 $42,000
6 $36,000
5 $30,000
</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 five (5) or ten
(10) years (depending on the Agreement) beginning on the date the deferring
director's retirement benefits commence under the Plan. The Company's Board of
Directors, in its sole discretion, may accelerate or extend the distribution of
such deferral accounts after the deferring director's termination of service as
a director of the Company. If a deferring director dies prior to the
distribution of amounts in his deferral account, the balance of the deferral
account will be distributed to his designated beneficiary in a single lump sum
payment as soon as practicable after such deferring director's death. The
Agreements are not funded and, with respect to the payments of amounts held
23
<PAGE> 59
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 fiscal year ended December 31, 1997, 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 $5,296, $4,400, $4,254, $4,280, $4,727,
$4,950, $4,684, $4,396 and $5,309, respectively, in legal fees to Kramer, Levin,
Naftalis & Frankel, the law firm in which Mr. Frischling, a director of the
Company, is a partner, as counsel to the Board of Directors.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENTS
Each Fund has entered into a master investment advisory agreement (the
"Advisory Agreement") dated February 28, 1997, and a master administrative
services agreement (the "Administrative Services Agreement"), dated May 1, 1998,
with AIM. A prior investment advisory agreement with substantially identical
terms to the Advisory Agreement was in effect prior to February 28, 1997. A
prior master administrative services agreement ("Prior Administrative Services
Agreement") with substantially similar terms to the Administrative Services
Agreement, was in effect prior to May 1, 1998. See "Management" in the
Prospectus.
AIM was organized in 1976, and along with its subsidiaries, manages or
advises over 50 investment company portfolios encompassing a broad range of
investment objectives. AIM is a wholly owned subsidiary of A I M Management
Group, Inc. ("AIM Management"), a holding company that has been engaged in the
financial services business since 1976. The address of AIM is 11 Greenway Plaza,
Suite 100, Houston, Texas 77046-1173. AIM Management is an indirect wholly owned
subsidiary of AMVESCAP PLC, 11 Devonshire Square, London, EC2M 4YR, United
Kingdom. AMVESCAP PLC and its subsidiaries are an independent investment
management group engaged in the business of investment management on an
international basis. Certain of the directors and officers of AIM are also
executive officers of the Fund and their affiliations are shown under "Directors
and Officers."
AIM and the Company have adopted a Code of Ethics (the "Code of
Ethics") which requires investment personnel and certain other employees (a) to
pre-clear all personal securities transactions subject to the Code of Ethics,
(b) to file reports or duplicate confirmations regarding such transactions, (c)
to refrain from personally engaging in (i) short-term trading of a security,
(ii) transactions involving a security within seven days of an AIM Fund
transaction involving the same security, and (iii) transactions involving
securities being considered for investment by an AIM Fund and (d) abide by
certain other provisions under the Code of Ethics. The Code of Ethics also
prohibits investment personnel and all other employees from purchasing
securities in an initial public offering. Personal trading reports are reviewed
periodically by AIM, and the Board of Directors reviews quarterly and annual
reports (including information on any substantial violations of the Code of
Ethics). Sanctions for violations of the Code of Ethics may include censure,
monetary penalties, suspension or termination of employment.
The Advisory Agreement for the Funds provides that each Fund will pay
all expenses of the Fund, including, without limitation: brokerage commissions,
taxes, legal, auditing, or governmental fees, the cost of preparing share
certificates, custodian, transfer and shareholder service agent costs, expenses
of issue, sale, redemption and repurchase of shares, expenses of registering and
qualifying shares for sale, expenses relating to directors and shareholder
meetings, the cost of preparing and distributing reports and notices to
shareholders, the fees and other expenses incurred by the Company on behalf of
the Funds in connection with membership in investment company organizations, the
cost of printing copies of prospectuses and statements of additional information
distributed to the Fund's shareholders; and all other charges and costs of the
Fund's operations unless otherwise explicitly provided.
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
December 11, 1996 and was approved by the
24
<PAGE> 60
Funds' shareholders on February 7, 1997. The Board of Directors of the Company
approved the continuance of the Agreement until June 30, 1998. The Advisory
Agreement became effective on February 28, 1997. The 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. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital
Appreciation Fund, AIM V.I. Capital Development Fund, AIM V.I. Diversified
Income Fund, AIM V.I. Global Utilities Fund, AIM V.I. Government Securities
Fund, AIM V.I. Growth Fund, AIM V.I. Growth and Income Fund, AIM V.I. High Yield
Fund, AIM V.I. International Equity Fund, AIM V.I. Money Market Fund 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:
<TABLE>
<CAPTION>
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GROWTH FUND
AIM V.I. GROWTH AND INCOME FUND
AIM V.I. VALUE FUND
ANNUAL
NET ASSETS RATE
---------------
<S> <C>
First $250 million................................................ 0.65%
Over $250 million ................................................ 0.60%
AIM V.I. AGGRESSIVE GROWTH FUND
ANNUAL
NET ASSETS RATE
---------------
First $150 million................................................ 0.80%
Over $150 million................................................. 0.625%
AIM V.I. BALANCED FUND
ANNUAL
NET ASSETS RATE
---------------
<S> <C>
First $150 million................................................. 0.75%
Over $150 million.................................................. 0.50%
AIM V.I. CAPITAL DEVELOPMENT FUND
ANNUAL
NET ASSETS RATE
---------------
First $350 million................................................ 0.75%
Over $350 million................................................. 0.625%
</TABLE>
25
<PAGE> 61
<TABLE>
<CAPTION>
AIM V.I. DIVERSIFIED INCOME FUND
ANNUAL
NET ASSETS RATE
---------------
<S> <C>
First $250 million................................................ 0.60%
Over $250 million................................................. 0.55%
AIM V.I. GOVERNMENT SECURITIES FUND
ANNUAL
NET ASSETS RATE
---------------
First $250 million................................................ 0.50%
Over $250 million................................................. 0.45%
AIM V.I. HIGH YIELD FUND
ANNUAL
NET ASSETS RATE
---------------
First $200 million ............................................... 0.625%
Next $300 million................................................. 0.55%
Next $500 million................................................. 0.50%
Amount over $1 billion............................................ 0.45%
AIM V.I. INTERNATIONAL EQUITY FUND
ANNUAL
NET ASSETS RATE
---------------
First $250 million................................................ 0.75%
Over $250 million................................................. 0.70%
AIM V.I. MONEY MARKET FUND
ANNUAL
NET ASSETS RATE
---------------
First $250 million ................................................ 0.40%
Over $250 million.................................................. 0.35%
</TABLE>
Each Fund paid to AIM a management fee (net of fee waivers) for the
fiscal years ended December 31, 1997, December 31, 1996, the eleven months ended
December 31, 1995 and the fiscal year ended January 31, 1995, under the Advisory
Agreement and a prior, substantially identical advisory agreement, as follows:
26
<PAGE> 62
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $3,083,708 $1,884,838 $ 882,870 $ 402,307
AIM V.I. Diversified Income Fund $ 447,539 $ 306,235 $ 193,008 $ 98,044
AIM V.I. Global Utilities Fund $ 106,309 $ 57,054 $ -0- $ -0-*
AIM V.I. Government Securities Fund $ 138,550 $ 107,471 $ 71,080 $ 42,430
AIM V.I. Growth Fund $1,453,488 $ 916,484 $ 434,620 $ 231,152
AIM V.I. Growth and Income Fund $2,609,695 $ 678,242 $ 46,017 $ -0-*
AIM V.I. International Equity Fund $1,519,323 $ 924,578 $ 457,559 $ 317,747
AIM V.I. Money Market Fund $ 254,546 $ 264,855 $ 168,901 $ 85,967
AIM V.I. Value Fund $3,303,799 $1,955,091 $1,078,007 $ 489,030
</TABLE>
* Fees paid were for the period May 2, 1994 (date operations commenced)
through January 31, 1995.
For the fiscal years ended December 31, 1997, December 31, 1996, the
eleven months ended December 31, 1995 and the fiscal year ended January 31,
1995, AIM waived management fees for each Fund as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0- $ 5,046
AIM V.I. Global Utilities Fund $ -0- $ 15,954 $ 32,703 $ 9,264*
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- $ 18,907
AIM V.I. Growth Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth and Income Fund $ -0- $ -0- $ 67,802 $ 20,806*
AIM V.I. International Equity Fund $ -0- $ -0- $ -0- $ 5,010
AIM V.I. Money Market Fund $ -0- $ -0- $ -0- $ 18,531
AIM V.I. Value Fund $ -0- $ -0- $ -0- $ -0-
</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 fiscal
years ended December 31, 1997, December 31, 1996, the eleven months ended
December 31, 1995 and for the fiscal year ended January 31, 1995, AIM absorbed
other expenses as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Diversified Income Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Global Utilities Fund $ -0- $ -0- $ 13,800 $ 12,000*
AIM V.I. Government Securities Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Growth and Income Fund $ -0- $ -0- $ -0- $ -0-*
AIM V.I. International Equity Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Money Market Fund $ -0- $ -0- $ -0- $ -0-
AIM V.I. Value Fund $ -0- $ -0- $ -0- $ -0-
</TABLE>
* Fee amounts are for the period May 2, 1994 (date operations
commenced) through January 31, 1995.
27
<PAGE> 63
The Administrative Services Agreement for the Funds provides that AIM
may perform certain accounting and other administrative services to each Fund
which are not required to be performed by AIM under the Advisory Agreement. For
such services, AIM would be entitled to receive from each Fund reimbursement of
its expenses. In addition, AIM provides, or assures that Participating Insurance
Companies will provide, certain services implementing the Company's funding
arrangements with Participating Insurance Companies. Effective May 1, 1998, the
Funds reimburse AIM for its costs in providing, or assuring that Participating
Insurance Companies provide, these services, currently in an amount up to 0.25%
of the average net asset value of each Fund in excess of the net asset value of
each Fund on April 30, 1998.
The Administrative Services Agreement for the Funds provides that the
agreement will remain in effect for the initial term and continue in effect from
year to year thereafter only if such continuance is specifically approved at
least annually (i) by the Company's Board of Directors or by the vote of a
majority of the outstanding voting securities of the Funds (as defined in the
1940 Act); and (ii) by the affirmative vote of a majority of the Non-Interested
Directors, by votes cast in person at a meeting called for such purpose. The
agreement terminates automatically in the event of its assignment or in the
event of termination of the Master Investment Advisory Agreement.
For the fiscal years ended December 31, 1997, December 31, 1996, the
eleven months ended December 31, 1995 and for the fiscal year ended January 31,
1995, AIM received reimbursement of administrative services costs from each of
the Funds pursuant to the Prior Administrative Services Agreement as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, January 31,
1997 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $43,588 $46,623 $ 33,560 $ 23,992
AIM V.I. Diversified Income Fund $48,683 $49,500 $ 36,406 $ 35,441
AIM V.I. Global Utilities Fund $47,128 $47,729 $ 33,582 $ 13,577*
AIM V.I. Government Securities Fund $37,872 $38,695 $ 30,769 $ 23,230
AIM V.I. Growth Fund $44,692 $39,552 $ 32,425 $ 23,537
AIM V.I. Growth and Income Fund $43,065 $38,784 $ 31,484 $ 13,596*
AIM V.I. International Equity Fund $59,724 $58,644 $ 21,068 $ 12,000
AIM V.I. Money Market Fund $38,289 $29,412 $ 22,997 $ 21,019
AIM V.I. Value Fund $53,632 $47,116 $ 35,540 $ 21,568
</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 February 28, 1997.
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 provides that AIM Distributors will bear the expenses of
printing from the final proof and distributing prospectuses and statements of
additional information of the Funds relating to the sale of Fund shares. The
Distribution Agreement provides that the Funds shall bear the expenses of
qualification of shares of the Fund for sale in connection with the public
offering in any jurisdictions where qualification is required by law. AIM
Distributors has not undertaken to sell any specified number of shares of the
Funds.
The Distribution Agreement for the Funds provides that it will continue
in effect for its initial term and from year to year thereafter only if such
continuance is specifically approved at least annually (i) by the Company's
Board of Directors or by the vote of a majority of the outstanding voting
securities of the Funds (as defined in the 1940 Act); and (ii) by the
affirmative vote of a majority of Non-Interested Directors by votes cast in
person at a meeting called for such purpose. The Company or AIM Distributors may
terminate its Distribution Agreement on sixty (60) days' written notice without
penalty. The Distribution Agreement will terminate automatically in the event of
its assignment.
28
<PAGE> 64
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 on the New York Stock Exchange
("NYSE") (generally 4:00 p.m. Eastern time) on each business day of the Fund. In
the event the NYSE closes early (i.e. before 4:00 p.m. Eastern Time) on a
particular day, the net asset value of a Fund share is determined as of the
close of the NYSE on such day. Net asset value per share is determined by
dividing the value of the Fund's securities, cash and other assets (including
interest accrued but not collected), less all its liabilities (including accrued
expenses and dividends payable), by the number of shares outstanding of the Fund
and rounding the resulting per share net asset value to the nearest one cent.
Determination of the Fund's net asset value per share is made in accordance with
generally accepted accounting principles.
The securities of the Fund are valued on the basis of amortized cost.
This method values a security at its cost on the date of purchase and thereafter
assumes a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the security. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if the security were sold. During
such periods, the daily yield on shares of the Fund computed as described under
"Yield Information" may differ somewhat from an identical computation made by
another investment company with identical investments utilizing available
indications as to the market value of its portfolio securities.
The valuation of the portfolio instruments based upon their amortized
cost and the concomitant maintenance of the net asset value per share of $1.00
for the Fund is permitted in accordance with applicable rules and regulations of
the SEC which require the Fund to adhere to certain conditions. The Fund will
invest only in "Eligible Securities," as defined in Rule 2a-7 of the 1940 Act,
which the Fund's Board of Directors has determined present minimal credit risk.
Rule 2a-7 also requires, among other things, that the Fund maintain a
dollar-weighted average portfolio maturity of 90 days or less and purchase only
instruments having remaining maturities of 397 calendar days or less.
The Board of Directors is required to establish procedures designed to
stabilize, to the extent reasonably practicable, the Fund's price per share at
$1.00 for the Fund as computed for the purpose of sales and redemptions. Such
procedures include review of the Fund's holdings by the Board of Directors at
such intervals as they may deem appropriate, to determine whether the net asset
value calculated by using available market quotations or other reputable sources
for the Fund deviates from $1.00 per share and, if so, whether such deviation
may result in material dilution or is otherwise unfair to existing holders of
the Fund's shares. In the event the Board of Directors determines that such a
deviation exists for the Fund, it will take such corrective action as the Board
of Directors deems necessary and appropriate with respect to the Fund, including
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity; the withholding of
dividends; redemption of shares in kind; or the establishment of a net asset
value per share by using available market quotations.
The Fund intends to comply with any amendments made to Rule 2a-7 which
may require corresponding changes in the Fund's procedures which are designed to
stabilize the Fund's price per share at $1.00.
For All Other Funds: The net asset value per share of each Fund is
normally determined daily as of the close of trading on the NYSE (generally 4:00
p.m. Eastern time) on each business day of the Company. In the event the NYSE
closes early (i.e. before 4:00 p.m. Eastern Time) on a particular day, the net
asset value of a Fund share is determined as of the close of the NYSE on such
day. For purposes of determining net asset value per share, futures and options
contracts closing prices which are available 15 minutes after the close of
trading of the NYSE will generally be used. Net asset value per share is
determined by dividing the value of the Fund's securities, cash and other assets
(including interest accrued but not collected), less all its liabilities
(including accrued expenses and dividends payable), by the total number of
shares outstanding. Determination of the Fund's net asset value per share is
made in accordance with generally accepted accounting principles.
29
<PAGE> 65
Each equity security held by the Fund is valued at its last sales price
on the exchange where the security is principally traded or, lacking any sales
on a particular day, the security is valued at the mean between the closing bid
and asked prices on that day. Each security traded in the over-the-counter
market (but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based upon
quotes furnished by market makers for such securities. Each security reported on
the NASDAQ National Market System is valued at the last sales price on the
valuation date or absent a last sales price, at the mean between the closing bid
and asked prices on that day. Debt securities are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and may
reflect appropriate factors such as institution-size trading in similar groups
of securities, developments related to special securities, yield, quality,
coupon rate, maturity, type of issue, individual trading characteristics and
other market data. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by the
Board of Directors of the Company. Short-term obligations having 60 days or less
to maturity are valued on the basis of amortized cost. For purposes of
determining net asset value per share, futures and options contracts generally
will be valued 15 minutes after the close of trading of the NYSE.
Generally, trading in foreign securities is substantially completed
each day at various times prior to the close of the NYSE. The values of such
foreign securities used in computing the net asset value of each Fund's shares
are determined at such times as trading is completed. Foreign currency exchange
rates are also generally determined prior the close of the NYSE. Occasionally,
events affecting the values of such foreign securities and such foreign
securities exchange rates may occur after the time at which such values are
determined and prior to the close of the NYSE that will not be reflected in the
computation of a Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
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 at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities, foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities or currencies. B. Each Fund must diversify its holdings
so that, at the end of each fiscal quarter or within 30 days thereafter: (i) at
least 50% of the market value of the Fund's assets is represented by cash, cash
items (including receivables), U.S. Government securities, securities of other
RICs, and other securities, with such other securities limited, with respect to
any one issuer, to an amount not greater than 5% of the Fund's assets and not
more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets is invested in the securities of any
one issuer (other than U.S. Government securities or securities of other RICs).
The Code imposes a nondeductible 4% excise tax on a RIC that fails to
distribute during each calendar year at least 98% of its ordinary income for the
calendar year and at least 98% of its capital gain net income for the 12-month
period ending on October 31 of the calendar year. Each Fund intends to make
sufficient distributions to avoid imposition of the excise tax.
As a RIC, each Fund will not be subject to federal income tax on its
income and gains distributed to shareholders if it distributes at least (i) 90%
of its investment company taxable income for the taxable year; and (ii) 90% of
the excess of its tax-exempt interest income under Code Section 103(a) over its
deductions disallowed under Code Sections 265 and 171(a)(2).
Each Fund intends to comply with the diversification requirements
imposed by section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements imposed
30
<PAGE> 66
on each Fund by the 1940 Act and Subchapter M of the Code, place certain
limitations on (i) the assets of the insurance company separate accounts that
may be invested in securities of a single issuer and (ii) eligible investors.
Because section 817(h) and those regulations treat the assets of each Fund as
assets of the corresponding division of the insurance company separate accounts,
each Fund intends to comply with these diversification requirements.
Specifically, the regulations provide that, except as permitted by the "safe
harbor" described below, as of the end of each calendar quarter or within 30
days thereafter no more than 55% of a Fund's total assets may be represented by
any one investment, no more than 70% by any two investments, no more than 80% by
any three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions all will be considered the same
issuer. The regulations also provide that a Fund's shareholders are limited,
generally, to life insurance company separate accounts, general accounts of the
same life insurance company, an investment adviser or affiliate in connection
with the creation or management of a Fund or the trustee of a qualified pension
plan. Section 817(h) provides, as a safe harbor, that a separate account will be
treated as being adequately diversified if the diversification requirements
under Subchapter M are satisfied and no more than 55% of the value of the
account's total assets are cash and cash items, government securities and
securities of other RICs. Failure of a Fund to satisfy the section 817(h)
requirements would result in taxation of and treatment of the Contract holders
investing in a corresponding division other than as described in the applicable
prospectuses of the various insurance company separate accounts.
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 February 2,
1998, 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 the CG Variable
Annuity Separate Account is Connecticut General Life Insurance Company, 900
Cottage Grove Road, Hartford, CT 06152-2321. The address of Glenbrook Life and
Annuity Company is 3100 Sanders Road, N4C, Northbrook, IL 60062. The address of
IDS Life Insurance Company is IDS Tower 10, T27/52, Minneapolis, MN 55440. The
address of Merrill Lynch Life Insurance Company is 800 Scudders Mill Road,
Plainsboro, NJ 08536. The address of Pruco Life Insurance Company is 751 Broad
Street, Newark, NJ 07102. The address of First Citicorp Life Insurance Company
is One Court Square, Long Island City, NY 11120.
31
<PAGE> 67
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- 62.52%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 19.49%
Merrill Lynch Life Insurance Company -0- -0- 12.08%
</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- 70.20%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 26.92%*
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- ---------------------------------------- ---------------- ------------- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 68.99%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 26.62%*
</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.
32
<PAGE> 68
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- 64.98%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 20.12%
First Citicorp Life -0- -0- 8.20%
</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- 74.71%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 23.10%
</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>
IDS Life Insurance Company -0- -0- 46.89%*
CG Variable Annuity -0- -0- 20.70%
Separate Account
Glenbrook Life & Annuity Company -0- -0- 12.04%
Pruco Life Insurance Company -0- -0- 6.71%
</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.
33
<PAGE> 69
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- 71.47%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 22.36%
</TABLE>
AIM V.I. MONEY MARKET FUND
<TABLE>
<CAPTION>
PERCENT OWNED PERCENT OWNED
NAME OF OF RECORD BENEFICIALLY PERCENT OWNED
RECORD OWNER AND BENEFICIALLY ONLY OF RECORD ONLY
- ---------------------------------------- ---------------- ------------- --------------
<S> <C> <C> <C>
CG Variable Annuity -0- -0- 73.83%*
Separate Account
Glenbrook Life & Annuity Company -0- -0- 24.87%
</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- 56.64%*
Separate Account
Merrill Lynch Life Insurance Company -0- -0- 15.93%
Glenbrook Life & Annuity Company -0- -0- 14.45%
</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.
34
<PAGE> 70
A I M Advisors, Inc. provided the initial capitalization of the AIM
V.I. Aggressive Growth Fund, AIM V.I. Balanced Fund, AIM V.I. Capital
Development Fund and AIM V.I. High Yield Fund and, accordingly, as of the date
of this Statement of Additional Information, owned all the outstanding shares of
common stock of the Funds. Although the Funds expect that the sale of its shares
to the public pursuant to the Prospectus will promptly reduce the percentage of
such shares owned by A I M Advisors, Inc. to less than 1% of the total shares
outstanding, as long as A I M Advisors, Inc. owns over 25% of the shares of the
Fund that are outstanding, it may be presumed to be in "control" of the Fund, as
defined in the 1940 Act.
As of February 2, 1998, the directors and officers of the Company as a
group owned beneficially less than 1% of the outstanding shares of the Company.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Funds have
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Funds
and the securities offered hereby. The Registration Statement is available for
inspection by the public at the SEC in Washington, D.C.
35
<PAGE> 71
FINANCIAL STATEMENTS
FS
<PAGE> 72
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Capital Appreciation Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Capital Appreciation Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations), through January 31, 1994 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. CAPITAL APPRECIATION FUND
FS-1
<PAGE> 73
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 94.71%
AEROSPACE/DEFENSE - 0.34%
BE Aerospace, Inc.(a) 27,500 $ 735,625
- ---------------------------------------------------------------------
Precision Castparts Corp. 17,000 1,025,313
- ---------------------------------------------------------------------
1,760,938
- ---------------------------------------------------------------------
AIR FREIGHT - 0.35%
AirNet Systems, Inc.(a) 20,000 430,000
- ---------------------------------------------------------------------
CNF Transportation Inc. 36,700 1,408,363
- ---------------------------------------------------------------------
1,838,363
- ---------------------------------------------------------------------
AIRLINES - 0.12%
Southwest Airlines Co. 24,900 613,163
- ---------------------------------------------------------------------
BANKS (REGIONAL) - 0.64%
AmSouth Bancorporation 25,000 1,357,812
- ---------------------------------------------------------------------
North Fork Bancorporation, Inc. 18,100 607,479
- ---------------------------------------------------------------------
TCF Financial Corp. 40,000 1,357,500
- ---------------------------------------------------------------------
3,322,791
- ---------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.08%
Coca-Cola Enterprises Inc. 11,800 419,637
- ---------------------------------------------------------------------
BIOTECHNOLOGY - 0.07%
Curative Technologies, Inc.(a) 12,600 382,725
- ---------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.22%
CanWest Global Communications Corp. (Canada) 77,700 1,398,600
- ---------------------------------------------------------------------
Chancellor Media Corp.(a) 3,636 271,337
- ---------------------------------------------------------------------
Clear Channel Communications, Inc.(a) 27,600 2,192,475
- ---------------------------------------------------------------------
Heftel Broadcasting Corp.(a) 22,100 1,033,175
- ---------------------------------------------------------------------
Jacor Communications, Inc.(a) 27,500 1,460,937
- ---------------------------------------------------------------------
6,356,524
- ---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 3.01%
ADC Telecommunications, Inc.(a) 116,700 4,872,225
- ---------------------------------------------------------------------
Brightpoint, Inc.(a) 67,200 932,400
- ---------------------------------------------------------------------
DSC Communications Corp.(a) 107,300 2,575,200
- ---------------------------------------------------------------------
ECI Telecommunications Ltd. (Israel) 35,000 892,500
- ---------------------------------------------------------------------
PairGain Technologies, Inc.(a) 63,100 1,222,562
- ---------------------------------------------------------------------
REMEC, Inc.(a) 7,500 168,750
- ---------------------------------------------------------------------
Scientific-Atlanta, Inc. 49,000 820,750
- ---------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Sweden) 21,420 799,234
- ---------------------------------------------------------------------
Tellabs, Inc.(a) 64,800 3,426,300
- ---------------------------------------------------------------------
15,709,921
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (HARDWARE) - 2.55%
Citrix Systems, Inc.(a) 10,000 $ 760,000
- -----------------------------------------------------------------
Comdisco, Inc. 68,500 2,290,468
- -----------------------------------------------------------------
Compaq Computer Corp. 41,500 2,342,156
- -----------------------------------------------------------------
Concord EFS, Inc.(a) 118,200 2,940,225
- -----------------------------------------------------------------
Dell Computer Corp.(a) 34,000 2,856,000
- -----------------------------------------------------------------
IDX Systems Corp.(a) 19,600 725,200
- -----------------------------------------------------------------
Micron Electronics, Inc.(a) 29,800 271,925
- -----------------------------------------------------------------
Sun Microsystems, Inc.(a) 28,300 1,128,463
- -----------------------------------------------------------------
13,314,437
- -----------------------------------------------------------------
COMPUTERS (NETWORKING) - 1.34%
Bay Networks, Inc.(a) 120,800 3,087,950
- -----------------------------------------------------------------
Cisco Systems, Inc.(a) 34,950 1,948,463
- -----------------------------------------------------------------
Newbridge Networks Corp. (Canada)(a) 56,000 1,953,000
- -----------------------------------------------------------------
6,989,413
- -----------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.11%
Adaptec, Inc.(a) 77,700 2,884,612
- -----------------------------------------------------------------
EMC Corp.(a) 129,200 3,544,925
- -----------------------------------------------------------------
Iomega Corp.(a) 114,000 1,417,875
- -----------------------------------------------------------------
Lexmark International Group, Inc.(a) 19,200 729,600
- -----------------------------------------------------------------
MicroTouch Systems, Inc.(a) 5,400 85,050
- -----------------------------------------------------------------
SMART Modular Technologies, Inc.(a) 15,000 345,000
- -----------------------------------------------------------------
Storage Technology Corp.(a) 32,600 2,019,164
- -----------------------------------------------------------------
11,026,226
- -----------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 8.42%
America Online, Inc.(a) 7,700 686,744
- -----------------------------------------------------------------
Applied Voice Technology, Inc.(a) 10,000 282,500
- -----------------------------------------------------------------
Aspect Development, Inc.(a) 12,500 650,000
- -----------------------------------------------------------------
Autodesk, Inc. 38,500 1,424,500
- -----------------------------------------------------------------
Avant! Corp.(a) 28,600 479,050
- -----------------------------------------------------------------
BMC Software, Inc.(a) 66,700 4,377,188
- -----------------------------------------------------------------
Broderbund Software, Inc.(a) 35,000 896,875
- -----------------------------------------------------------------
Cadence Design Systems, Inc.(a) 135,900 3,329,550
- -----------------------------------------------------------------
CBT Group PLC-ADR (Ireland)(a) 900 73,913
- -----------------------------------------------------------------
Computer Associates International, Inc. 56,250 2,974,219
- -----------------------------------------------------------------
Compuware Corp.(a) 156,600 5,011,200
- -----------------------------------------------------------------
Electronic Arts, Inc.(a) 45,000 1,701,563
- -----------------------------------------------------------------
Electronics for Imaging, Inc.(a) 4,600 76,475
- -----------------------------------------------------------------
HBO & Co. 94,688 4,545,024
- -----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-2
<PAGE> 74
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES) - (CONTINUED)
Microsoft Corp.(a) 18,300 $ 2,365,275
- -----------------------------------------------------------------------
Network Associates, Inc.(a) 7,900 417,713
- -----------------------------------------------------------------------
Oracle Corp.(a) 30,662 684,146
- -----------------------------------------------------------------------
Parametric Technology Co.(a) 59,800 2,833,025
- -----------------------------------------------------------------------
Platinum Technology, Inc.(a) 66,800 1,887,100
- -----------------------------------------------------------------------
Security Dynamics Technologies, Inc.(a) 34,400 1,229,800
- -----------------------------------------------------------------------
Sterling Commerce, Inc.(a) 75,055 2,884,927
- -----------------------------------------------------------------------
Sterling Software, Inc.(a) 16,800 688,800
- -----------------------------------------------------------------------
Symantec Corp.(a) 38,000 833,625
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 69,000 2,466,750
- -----------------------------------------------------------------------
Tecnomatix Technologies Ltd. (Israel)(a) 18,600 627,750
- -----------------------------------------------------------------------
Wind River Systems(a) 15,000 595,313
- -----------------------------------------------------------------------
44,023,025
- -----------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.29%
Action Performance Companies, Inc.(a) 16,000 606,000
- -----------------------------------------------------------------------
Blyth Industries, Inc.(a) 30,400 910,100
- -----------------------------------------------------------------------
1,516,100
- -----------------------------------------------------------------------
CONSUMER FINANCE - 3.35%
Aames Financial Corp. 30,150 390,066
- -----------------------------------------------------------------------
Capital One Financial Corp. 39,100 2,118,731
- -----------------------------------------------------------------------
ContiFinancial Corp.(a) 15,000 377,813
- -----------------------------------------------------------------------
FIRSTPLUS Financial Group, Inc.(a) 48,000 1,842,000
- -----------------------------------------------------------------------
Household International, Inc. 39,600 5,051,475
- -----------------------------------------------------------------------
IMC Mortgage Co.(a) 62,000 736,250
- -----------------------------------------------------------------------
MBNA Corp. 103,988 2,840,159
- -----------------------------------------------------------------------
Money Store, Inc. (The) 40,000 840,000
- -----------------------------------------------------------------------
Providian Financial Corp. 20,000 903,750
- -----------------------------------------------------------------------
SLM Holding Corp. 17,500 2,434,688
- -----------------------------------------------------------------------
17,534,932
- -----------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.94%
Cardinal Health, Inc. 43,025 3,232,253
- -----------------------------------------------------------------------
McKesson Corp. 15,600 1,687,725
- -----------------------------------------------------------------------
4,919,978
- -----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.84%
American Power Conversion Corp.(a) 49,800 1,176,525
- -----------------------------------------------------------------------
Avid Technology, Inc.(a) 18,700 500,225
- -----------------------------------------------------------------------
AVX Corp. 39,300 724,594
- -----------------------------------------------------------------------
Berg Electronics Corp.(a) 27,200 618,800
- -----------------------------------------------------------------------
Black Box Corp.(a) 19,400 686,275
- -----------------------------------------------------------------------
HADCO Corp.(a) 17,500 791,875
- -----------------------------------------------------------------------
Kemet Corp.(a) 39,000 755,625
- -----------------------------------------------------------------------
Molex, Inc. 4,300 138,138
- -----------------------------------------------------------------------
Molex, Inc.-Class A 13,133 377,552
- -----------------------------------------------------------------------
Sanmina Corp.(a) 25,000 1,693,750
- -----------------------------------------------------------------------
Sawtek Inc.(a) 14,900 392,988
- -----------------------------------------------------------------------
SCI Systems, Inc.(a) 92,400 4,025,175
- -----------------------------------------------------------------------
Solectron Corp.(a) 39,200 1,629,250
- -----------------------------------------------------------------------
Symbol Technologies, Inc. 35,000 1,321,250
- -----------------------------------------------------------------------
14,832,022
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.82%
Arrow Electronics, Inc.(a) 50,400 $ 1,634,850
- ------------------------------------------------------------------------
Avnet, Inc. 28,100 1,854,600
- ------------------------------------------------------------------------
Kent Electronics Corp.(a) 31,600 793,950
- ------------------------------------------------------------------------
4,283,400
- ------------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.79%
Methode Electronics, Inc.-Class A 39,450 641,063
- ------------------------------------------------------------------------
Perkin-Elmer Corp. 36,200 2,572,463
- ------------------------------------------------------------------------
Tektronix, Inc. 23,100 916,781
- ------------------------------------------------------------------------
4,130,307
- ------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 5.72%
Altera Corp.(a) 69,000 2,285,625
- ------------------------------------------------------------------------
ANADIGICS, Inc.(a) 25,000 753,125
- ------------------------------------------------------------------------
Analog Devices, Inc.(a) 64,700 1,791,381
- ------------------------------------------------------------------------
ASM Lithography Holding N.V. (Netherlands)(a) 11,600 783,000
- ------------------------------------------------------------------------
Atmel Corp.(a) 74,400 1,381,050
- ------------------------------------------------------------------------
Burr-Brown Corp.(a) 27,700 889,863
- ------------------------------------------------------------------------
Dallas Semiconductor Corp. 38,400 1,564,800
- ------------------------------------------------------------------------
Intel Corp. 18,800 1,320,700
- ------------------------------------------------------------------------
Lattice Semiconductor Corp.(a) 32,400 1,534,950
- ------------------------------------------------------------------------
Linear Technology Corp. 45,100 2,598,888
- ------------------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 137,800 4,754,100
- ------------------------------------------------------------------------
Microchip Technology, Inc.(a) 107,500 3,225,000
- ------------------------------------------------------------------------
National Semiconductor Corp.(a) 103,000 2,671,563
- ------------------------------------------------------------------------
PMC-Sierra, Inc.(a) 25,000 775,000
- ------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co. Ltd.-ADR
(Taiwan)(a) 19,000 345,563
- ------------------------------------------------------------------------
Texas Instruments, Inc. 20,000 900,000
- ------------------------------------------------------------------------
Unitrode Corp.(a) 14,000 301,000
- ------------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 18,000 679,500
- ------------------------------------------------------------------------
Xilinx, Inc.(a) 38,000 1,332,375
- ------------------------------------------------------------------------
29,887,483
- ------------------------------------------------------------------------
ENTERTAINMENT - 0.20%
Regal Cinemas, Inc.(a) 37,500 1,045,313
- ------------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 1.41%
Applied Materials, Inc.(a) 35,700 1,075,463
- ------------------------------------------------------------------------
BMC Industries, Inc. 5,000 80,625
- ------------------------------------------------------------------------
Etec Systems, Inc.(a) 10,000 465,000
- ------------------------------------------------------------------------
KLA-Tencor Corp.(a) 47,600 1,838,550
- ------------------------------------------------------------------------
Lam Research Corp.(a) 52,700 1,541,475
- ------------------------------------------------------------------------
Novellus Systems, Inc.(a) 41,000 1,324,813
- ------------------------------------------------------------------------
Teradyne, Inc.(a) 33,000 1,056,000
- ------------------------------------------------------------------------
7,381,926
- ------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.36%
MGIC Investment Corp. 78,000 5,187,000
- ------------------------------------------------------------------------
Newcourt Credit Group, Inc. (Canada) 9,900 330,413
- ------------------------------------------------------------------------
SunAmerica, Inc. 37,500 1,603,125
- ------------------------------------------------------------------------
7,120,538
- ------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-3
<PAGE> 75
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOOTWEAR - 0.26%
Adidas A.G. (Germany) 4,000 $ 526,070
- ----------------------------------------------------------------------
Wolverine World Wide, Inc. 37,900 857,488
- ----------------------------------------------------------------------
1,383,558
- ----------------------------------------------------------------------
GAMING, LOTTERY & PARI-MUTUEL COMPANIES - 0.20%
International Game Technology 26,700 674,175
- ----------------------------------------------------------------------
MGM Grand, Inc.(a) 10,000 360,625
- ----------------------------------------------------------------------
1,034,800
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.29%
Alpharma, Inc. 12,750 277,313
- ----------------------------------------------------------------------
Biovail Corporation International (Canada)(a) 10,000 390,625
- ----------------------------------------------------------------------
Columbia Laboratories, Inc.(a) 20,000 317,500
- ----------------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 32,300 1,481,763
- ----------------------------------------------------------------------
Elan Corp. PLC-ADR (Ireland)(a) 64,200 3,286,238
- ----------------------------------------------------------------------
Forest Laboratories, Inc.(a) 21,200 1,045,425
- ----------------------------------------------------------------------
Jones Medical Industries, Inc. 47,500 1,816,875
- ----------------------------------------------------------------------
Mylan Laboratories, Inc. 60,300 1,262,531
- ----------------------------------------------------------------------
Parexel International Corp.(a) 13,300 492,100
- ----------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 50,000 1,621,875
- ----------------------------------------------------------------------
11,992,245
- ----------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 2.92%
Health Management Associates, Inc.-Class A(a) 201,768 5,094,642
- ----------------------------------------------------------------------
Quorum Health Group, Inc.(a) 69,500 1,815,688
- ----------------------------------------------------------------------
Tenet Healthcare Corp.(a) 148,465 4,917,903
- ----------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 68,400 3,445,650
- ----------------------------------------------------------------------
15,273,883
- ----------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 1.82%
Beverly Enterprises, Inc.(a) 90,000 1,170,000
- ----------------------------------------------------------------------
Health Care and Retirement Corp.(a) 70,000 2,817,500
- ----------------------------------------------------------------------
HEALTHSOUTH Corp.(a) 199,500 5,536,125
- ----------------------------------------------------------------------
9,523,625
- ----------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 1.20%
American Oncology Resources, Inc.(a) 10,000 160,000
- ----------------------------------------------------------------------
Concentra Managed Care, Inc.(a) 41,500 1,400,625
- ----------------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 21,800 1,308,000
- ----------------------------------------------------------------------
HealthCare COMPARE Corp.(a) 24,100 1,232,113
- ----------------------------------------------------------------------
PhyCor, Inc.(a) 81,300 2,195,100
- ----------------------------------------------------------------------
6,295,838
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.54%
Arterial Vascular Engineering, Inc.(a) 15,200 $ 988,000
- --------------------------------------------------------------
Biomet, Inc. 37,200 953,250
- --------------------------------------------------------------
Dentsply International, Inc. 32,000 976,000
- --------------------------------------------------------------
Guidant Corp. 21,600 1,344,600
- --------------------------------------------------------------
Henry Schein, Inc.(a) 28,485 996,975
- --------------------------------------------------------------
Medtronic, Inc. 33,500 1,752,469
- --------------------------------------------------------------
Physician Sales & Service, Inc.(a) 33,000 709,500
- --------------------------------------------------------------
Quintiles Transnational Corp.(a) 35,600 1,361,700
- --------------------------------------------------------------
Sofamor Danek Group, Inc.(a) 12,000 780,750
- --------------------------------------------------------------
Stryker Corp. 14,200 528,950
- --------------------------------------------------------------
Sybron International Corp.(a) 61,800 2,900,738
- --------------------------------------------------------------
13,292,932
- --------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 2.21%
American HomePatient, Inc.(a) 22,050 518,175
- --------------------------------------------------------------
Covance, Inc.(a) 82,525 1,640,184
- --------------------------------------------------------------
FPA Medical Management, Inc.(a) 56,600 1,054,175
- --------------------------------------------------------------
Lincare Holdings, Inc.(a) 40,500 2,308,500
- --------------------------------------------------------------
Omnicare, Inc. 143,900 4,460,900
- --------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 15,000 249,375
- --------------------------------------------------------------
PharMerica, Inc.(a) 40,959 424,950
- --------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 31,333 861,658
- --------------------------------------------------------------
Transition Systems, Inc.(a) 600 13,275
- --------------------------------------------------------------
11,531,192
- --------------------------------------------------------------
HOMEBUILDING - 0.29%
Clayton Homes, Inc. 65,000 1,170,000
- --------------------------------------------------------------
Oakwood Homes Corp. 10,100 335,194
- --------------------------------------------------------------
1,505,194
- --------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.28%
Leggett & Platt, Inc. 35,000 1,465,625
- --------------------------------------------------------------
HOUSEWARES - 0.05%
Central Garden and Pet Co.(a) 10,000 262,500
- --------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.64%
Everest Reinsurance Holdings, Inc. 35,000 1,443,750
- --------------------------------------------------------------
Executive Risk Inc. 4,400 307,175
- --------------------------------------------------------------
HCC Insurance Holdings, Inc. 9,200 195,500
- --------------------------------------------------------------
Mercury General Corp. 25,000 1,381,250
- --------------------------------------------------------------
3,327,675
- --------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.20%
Paine Webber Group Inc. 30,000 1,036,875
- --------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-4
<PAGE> 76
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INVESTMENT MANAGEMENT - 0.54%
Franklin Resources, Inc. 11,500 $ 999,779
- -----------------------------------------------------------------
T. Rowe Price Associates, Inc. 29,000 1,823,375
- -----------------------------------------------------------------
2,823,154
- -----------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.64%
Callaway Golf Co. 16,900 482,706
- -----------------------------------------------------------------
GTECH Holdings Corp.(a) 21,300 680,269
- -----------------------------------------------------------------
Harley-Davidson, Inc. 53,600 1,467,300
- -----------------------------------------------------------------
North Face, Inc. (The)(a) 12,500 275,000
- -----------------------------------------------------------------
Speedway Motorsports, Inc.(a) 17,900 444,144
- -----------------------------------------------------------------
3,349,419
- -----------------------------------------------------------------
LODGING (HOTELS) - 0.47%
Choice Hotels International, Inc.(a) 36,000 576,000
- -----------------------------------------------------------------
Promus Hotel Corp.(a) 42,544 1,786,838
- -----------------------------------------------------------------
Sunburst Hospitality Corp.(a) 12,000 118,500
- -----------------------------------------------------------------
2,481,338
- -----------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.02%
AMETEK, Inc. 9,000 243,000
- -----------------------------------------------------------------
Hillenbrand Industries, Inc. 26,200 1,341,113
- -----------------------------------------------------------------
Pentair, Inc. 14,500 521,094
- -----------------------------------------------------------------
Thermo Electron Corp.(a) 44,300 1,971,350
- -----------------------------------------------------------------
Tyco International Ltd. (Bermuda) 27,936 1,258,866
- -----------------------------------------------------------------
5,335,423
- -----------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.74%
Cognex Corp.(a) 42,500 1,158,125
- -----------------------------------------------------------------
Diebold, Inc. 32,100 1,625,063
- -----------------------------------------------------------------
US Filter Corp.(a) 36,100 1,080,740
- -----------------------------------------------------------------
3,863,928
- -----------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.20%
Herman Miller, Inc. 14,000 763,875
- -----------------------------------------------------------------
HON INDUSTRIES, Inc. 4,900 289,100
- -----------------------------------------------------------------
1,052,975
- -----------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 8.60%
Baker Hughes, Inc. 38,500 1,679,563
- -----------------------------------------------------------------
BJ Services Co.(a) 43,000 3,093,313
- -----------------------------------------------------------------
Camco International, Inc. 41,500 2,643,031
- -----------------------------------------------------------------
Cooper Cameron Corp.(a) 44,000 2,684,000
- -----------------------------------------------------------------
Core Laboratories N.V. (Netherlands)(a) 30,200 545,488
- -----------------------------------------------------------------
Diamond Offshore Drilling, Inc. 37,500 1,804,688
- -----------------------------------------------------------------
ENSCO International, Inc. 42,500 1,423,750
- -----------------------------------------------------------------
EVI, Inc.(a) 35,600 1,842,300
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT) - (CONTINUED)
Falcon Drilling Co., Inc.(a) 59,000 $2,068,688
- ----------------------------------------------------------------
Global Industries Ltd.(a) 85,000 1,445,000
- ----------------------------------------------------------------
Global Marine, Inc.(a) 27,000 661,500
- ----------------------------------------------------------------
Halliburton Co. 19,200 997,200
- ----------------------------------------------------------------
Input/Output, Inc.(a) 58,500 1,736,719
- ----------------------------------------------------------------
Lone Star Technologies, Inc.(a) 27,000 766,125
- ----------------------------------------------------------------
Marine Drilling Companies, Inc.(a) 64,800 1,344,600
- ----------------------------------------------------------------
Nabors Industries, Inc.(a) 57,400 1,804,513
- ----------------------------------------------------------------
National-Oilwell, Inc.(a) 36,600 1,251,263
- ----------------------------------------------------------------
Noble Drilling Corp.(a) 45,000 1,378,125
- ----------------------------------------------------------------
Petroleum Geo-Services ASA-ADR (Norway)(a) 15,000 971,250
- ----------------------------------------------------------------
Precision Drilling Corp. (Canada)(a) 60,000 1,462,500
- ----------------------------------------------------------------
Pride International, Inc.(a) 79,500 2,007,375
- ----------------------------------------------------------------
Rowan Companies, Inc.(a) 41,000 1,250,500
- ----------------------------------------------------------------
Santa Fe International Corp. 14,100 573,694
- ----------------------------------------------------------------
Smith International, Inc.(a) 35,300 2,166,538
- ----------------------------------------------------------------
Transocean Offshore Inc. 49,000 2,361,188
- ----------------------------------------------------------------
Varco International, Inc.(a) 116,600 2,499,613
- ----------------------------------------------------------------
Veritas DGC, Inc.(a) 35,800 1,414,100
- ----------------------------------------------------------------
Weatherford Enterra, Inc.(a) 25,000 1,093,750
- ----------------------------------------------------------------
44,970,374
- ----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.08%
Apache Corp. 30,000 1,051,875
- ----------------------------------------------------------------
Burlington Resources, Inc. 29,100 1,304,044
- ----------------------------------------------------------------
Ocean Energy, Inc.(a) 26,000 1,282,125
- ----------------------------------------------------------------
Pioneer Natural Resources Co. 13,000 376,188
- ----------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 80,000 900,000
- ----------------------------------------------------------------
Stolt Comex Seaway, S.A. (United Kingdom)(a) 15,000 750,000
- ----------------------------------------------------------------
5,664,232
- ----------------------------------------------------------------
PERSONAL CARE - 0.54%
Perrigo Co.(a) 75,000 1,003,125
- ----------------------------------------------------------------
Rexall Sundown, Inc.(a) 60,200 1,817,288
- ----------------------------------------------------------------
2,820,413
- ----------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 0.28%
Xerox Corp. 19,600 1,446,725
- ----------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.36%
AES Corp.(a) 40,000 1,865,000
- ----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-5
<PAGE> 77
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RESTAURANTS - 1.39%
Apple South, Inc. 77,800 $ 1,021,125
- -----------------------------------------------------------------
Applebee's International, Inc. 53,600 968,150
- -----------------------------------------------------------------
Brinker International, Inc.(a) 36,600 585,600
- -----------------------------------------------------------------
CKE Restaurants, Inc. 35,900 1,512,288
- -----------------------------------------------------------------
Cracker Barrel Old Country Store, Inc. 40,000 1,335,000
- -----------------------------------------------------------------
Foodmaker, Inc.(a) 10,000 150,625
- -----------------------------------------------------------------
Outback Steakhouse, Inc.(a) 21,000 603,750
- -----------------------------------------------------------------
Starbucks Corp.(a) 28,200 1,082,175
- -----------------------------------------------------------------
7,258,713
- -----------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.60%
Eagle Hardware & Garden, Inc.(a) 37,500 726,563
- -----------------------------------------------------------------
Fastenal Co. 14,500 554,625
- -----------------------------------------------------------------
Home Depot, Inc. 10,950 644,681
- -----------------------------------------------------------------
Lowe's Companies, Inc. 25,000 1,192,188
- -----------------------------------------------------------------
3,118,057
- -----------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 2.09%
Best Buy Co., Inc.(a) 36,800 1,357,000
- -----------------------------------------------------------------
CHS Electronics, Inc.(a) 75,000 1,284,375
- -----------------------------------------------------------------
CompUSA, Inc.(a) 116,700 3,617,700
- -----------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 40,700 1,185,388
- -----------------------------------------------------------------
Tech Data Corp.(a) 89,900 3,494,863
- -----------------------------------------------------------------
10,939,326
- -----------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.67%
Kohl's Corp.(a) 18,400 1,253,500
- -----------------------------------------------------------------
Nordstrom, Inc. 28,100 1,696,538
- -----------------------------------------------------------------
Proffitt's, Inc.(a) 20,200 574,438
- -----------------------------------------------------------------
3,524,476
- -----------------------------------------------------------------
RETAIL (DISCOUNTERS) - 1.81%
Consolidated Stores Corp.(a) 95,162 4,181,180
- -----------------------------------------------------------------
Dollar General Corp. 24,002 870,073
- -----------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 37,650 1,557,769
- -----------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 55,750 1,937,313
- -----------------------------------------------------------------
Ross Stores, Inc. 24,600 894,825
- -----------------------------------------------------------------
9,441,160
- -----------------------------------------------------------------
RETAIL (DRUG STORES) - 0.68%
CVS Corp. 7,773 497,958
- -----------------------------------------------------------------
Rite Aid Corp. 52,280 3,068,183
- -----------------------------------------------------------------
3,566,141
- -----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.92%
American Stores Co. 11,100 228,244
- -----------------------------------------------------------------
Kroger Co.(a) 103,500 3,823,031
- -----------------------------------------------------------------
Quality Food Centers, Inc.(a) 14,800 991,600
- -----------------------------------------------------------------
Safeway, Inc.(a) 78,700 4,977,775
- -----------------------------------------------------------------
10,020,650
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE) - 0.88%
Costco Companies, Inc.(a) 17,400 $ 776,475
- -----------------------------------------------------------------
Dayton Hudson Corp. 28,800 1,944,000
- -----------------------------------------------------------------
Fred Meyer, Inc.(a) 51,600 1,876,950
- -----------------------------------------------------------------
4,597,425
- -----------------------------------------------------------------
RETAIL (HOME SHOPPING) - 0.78%
CDW Computer Centers, Inc.(a) 58,500 3,049,313
- -----------------------------------------------------------------
Micro Warehouse, Inc.(a) 72,900 1,016,044
- -----------------------------------------------------------------
4,065,357
- -----------------------------------------------------------------
RETAIL (SPECIALTY) - 3.95%
AutoZone, Inc.(a) 20,000 580,000
- -----------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 45,500 1,751,750
- -----------------------------------------------------------------
Finish Line, Inc. (The)-Class A(a) 19,100 250,688
- -----------------------------------------------------------------
General Nutrition Companies, Inc.(a) 39,200 1,332,800
- -----------------------------------------------------------------
Hollywood Entertainment Corp.(a) 67,800 720,375
- -----------------------------------------------------------------
Inacom Corp.(a) 20,600 578,088
- -----------------------------------------------------------------
Michaels Stores, Inc.(a) 57,500 1,681,875
- -----------------------------------------------------------------
Office Depot, Inc.(a) 84,400 2,020,325
- -----------------------------------------------------------------
Petco Animal Supplies, Inc.(a) 25,600 614,400
- -----------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 30,100 731,806
- -----------------------------------------------------------------
Staples, Inc.(a) 135,925 3,771,919
- -----------------------------------------------------------------
Tiffany & Co. 41,100 1,482,169
- -----------------------------------------------------------------
Toys "R" Us, Inc.(a) 28,400 892,825
- -----------------------------------------------------------------
Viking Office Products, Inc.(a) 117,300 2,558,606
- -----------------------------------------------------------------
Williams-Sonoma, Inc.(a) 39,600 1,658,250
- -----------------------------------------------------------------
20,625,876
- -----------------------------------------------------------------
RETAIL (SPECIALTY - APPAREL) - 0.67%
Gap, Inc. 49,050 1,738,209
- -----------------------------------------------------------------
The TJX Companies, Inc. 51,500 1,770,313
- -----------------------------------------------------------------
3,508,522
- -----------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.16%
Dime Bancorp, Inc. 27,300 825,825
- -----------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.31%
Omnicom Group, Inc. 38,800 1,644,150
- -----------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.27%
Avis Rent A Car, Inc.(a) 30,000 958,125
- -----------------------------------------------------------------
Cendant Corp.(a) 42,535 1,462,136
- -----------------------------------------------------------------
Cerner Corp.(a) 74,200 1,567,475
- -----------------------------------------------------------------
Cintas Corp. 8,000 312,000
- -----------------------------------------------------------------
Equity Corp. International(a) 13,800 319,125
- -----------------------------------------------------------------
Service Corp. International 129,000 4,764,931
- -----------------------------------------------------------------
Stewart Enterprises, Inc.- Class A 53,750 2,506,094
- -----------------------------------------------------------------
11,889,886
- -----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-6
<PAGE> 78
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMPUTER SYSTEMS) - 1.29%
Cambridge Technology Partners, Inc.(a) 17,800 $ 740,925
- -------------------------------------------------------------------
Gartner Group, Inc.(a) 70,500 2,626,125
- -------------------------------------------------------------------
Shared Medical Systems Corp. 25,600 1,689,600
- -------------------------------------------------------------------
SunGard Data Systems Inc.(a) 55,200 1,711,200
- -------------------------------------------------------------------
6,767,850
- -------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 2.47%
Affiliated Computer Services, Inc.(a) 30,500 802,531
- -------------------------------------------------------------------
The BISYS Group, Inc.(a) 12,000 399,000
- -------------------------------------------------------------------
Ceridian Corp.(a) 25,700 1,177,381
- -------------------------------------------------------------------
CSG Systems International, Inc.(a) 27,400 1,096,000
- -------------------------------------------------------------------
DST Systems, Inc.(a) 34,800 1,485,525
- -------------------------------------------------------------------
Equifax, Inc. 14,000 496,125
- -------------------------------------------------------------------
Fiserv, Inc.(a) 51,900 2,549,588
- -------------------------------------------------------------------
National Data Corp. 22,500 812,813
- -------------------------------------------------------------------
Paychex, Inc. 67,350 3,409,594
- -------------------------------------------------------------------
PMT Services, Inc.(a) 50,500 700,688
- -------------------------------------------------------------------
12,929,245
- -------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.13%
AccuStaff, Inc.(a) 29,300 673,900
- -------------------------------------------------------------------
SPECIALTY PRINTING - 0.25%
Valassis Communications, Inc.(a) 35,000 1,295,000
- -------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.32%
Nokia Oyj A.B.-Class A (Finland) 4,300 300,553
- -------------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Finland) 19,600 1,372,000
- -------------------------------------------------------------------
1,672,553
- -------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.44%
Billing Information Concepts(a) 31,000 1,488,000
- -------------------------------------------------------------------
CIENA Corp.(a) 39,100 2,389,988
- -------------------------------------------------------------------
LCI International, Inc.(a) 118,600 3,646,950
- -------------------------------------------------------------------
7,524,938
- -------------------------------------------------------------------
TELEPHONE - 0.27%
Cincinnati Bell, Inc. 46,300 1,435,300
- -------------------------------------------------------------------
TEXTILES (APPAREL) - 1.52%
Jones Apparel Group, Inc.(a) 44,900 1,930,700
- -------------------------------------------------------------------
Liz Claiborne, Inc. 41,500 1,735,210
- -------------------------------------------------------------------
Nautica Enterprises, Inc.(a) 51,600 1,199,700
- -------------------------------------------------------------------
St. John Knits, Inc. 26,700 1,068,000
- -------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 57,100 2,005,630
- -------------------------------------------------------------------
7,939,240
- -------------------------------------------------------------------
TEXTILES (SPECIALTY) - 0.39%
Unifi, Inc. 49,500 2,014,031
- -------------------------------------------------------------------
TRUCKS & PARTS - 0.05%
Wabash National Corp. 10,000 284,375
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
WASTE MANAGEMENT - 1.06%
Thermo Instrument Systems, Inc.(a) 42,125 $ 1,450,680
- ----------------------------------------------------------------
USA Waste Services, Inc.(a) 104,675 4,108,497
- ----------------------------------------------------------------
5,559,177
- ----------------------------------------------------------------
Total Common Stocks 495,129,258
- ----------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.07%
FINANCIAL (DIVERSIFIED) - 0.07%
MGIC Investment Corp.-$3.12 Conv. Pfd. 3,500 388,500
- ----------------------------------------------------------------
RIGHTS - 0.07%
FINANCIAL (DIVERSIFIED) - 0.07%
Newcourt Credit Group, Inc. (Canada) 11,400 374,775
- ----------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS - 0.14%
COMPUTERS (PERIPHERALS) - 0.14%
EMC Corp., Conv. Sub. Notes, 3.25%,
03/15/02 $ 550,000 742,363
- ----------------------------------------------------------------
REPURCHASE AGREEMENTS - 3.67%(b)
Goldman Sachs & Co., 6.53%,
01/02/98(c) 509,896 509,896
- ----------------------------------------------------------------
Smith Barney, Inc., 6.75%,
01/02/98(d) 18,650,989 18,650,989
- ----------------------------------------------------------------
Total Repurchase Agreements 19,160,885
- ----------------------------------------------------------------
TOTAL INVESTMENTS - 98.66% 515,795,781
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.34% 6,984,297
- ----------------------------------------------------------------
NET ASSETS - 100.00% $522,780,078
================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$900,326,500. Collateralized by $856,643,000 U.S. Government obligations,
0% to 14% due 01/08/98 to 05/15/21 with a market value at 12/31/97 of
$918,902,583.
(d) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with a market value at 12/31/97 of
$408,000,323.
Abbreviations:
ADR- American Depositary Receipt
Conv.- Convertible
Pfd.- Preferred
Sub.- Subordinated
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
FS-7
<PAGE> 79
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $404,013,691) $515,795,781
- ----------------------------------------------------------------------
Receivables for:
Investments sold 9,116,531
- ----------------------------------------------------------------------
Capital stock sold 344,734
- ----------------------------------------------------------------------
Dividends and interest 129,747
- ----------------------------------------------------------------------
Investment for deferred compensation plan 19,105
- ----------------------------------------------------------------------
Organizational costs, net 965
- ----------------------------------------------------------------------
Other assets 970
- ----------------------------------------------------------------------
Total assets 525,407,833
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,977,594
- ----------------------------------------------------------------------
Capital stock reacquired 301,121
- ----------------------------------------------------------------------
Deferred compensation plan 19,105
- ----------------------------------------------------------------------
Accrued advisory fees 287,049
- ----------------------------------------------------------------------
Accrued directors' fees 2,657
- ----------------------------------------------------------------------
Accrued administrative service fees 3,404
- ----------------------------------------------------------------------
Accrued operating expenses 36,825
- ----------------------------------------------------------------------
Total liabilities 2,627,755
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $522,780,078
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 24,031,390
======================================================================
Net asset value, offering and redemption price per share $ 21.75
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $19,940 foreign withholding tax) $ 1,141,020
- ---------------------------------------------------------------------------
Interest 3,099,764
- ---------------------------------------------------------------------------
Total investment income 4,240,784
- ---------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,083,708
- ---------------------------------------------------------------------------
Administrative service fees 43,588
- ---------------------------------------------------------------------------
Custodian fees 85,219
- ---------------------------------------------------------------------------
Directors' fees and expenses 10,814
- ---------------------------------------------------------------------------
Organizational costs 2,892
- ---------------------------------------------------------------------------
Other 105,711
- ---------------------------------------------------------------------------
Total expenses 3,331,932
- ---------------------------------------------------------------------------
Less: Expenses paid indirectly (5,157)
- ---------------------------------------------------------------------------
Net expenses 3,326,775
- ---------------------------------------------------------------------------
Net investment income 914,009
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) on sales of:
Investment securities 11,600,242
- ---------------------------------------------------------------------------
Foreign currencies (1,983)
- ---------------------------------------------------------------------------
Futures contracts 4,557,682
- ---------------------------------------------------------------------------
16,155,941
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 36,215,593
- ---------------------------------------------------------------------------
Futures contracts (261,890)
- ---------------------------------------------------------------------------
35,953,703
- ---------------------------------------------------------------------------
Net gain on investment securities, foreign currencies and
futures contracts 52,109,644
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $53,023,653
===========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
FS-8
<PAGE> 80
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 914,009 $ 521,505
- ------------------------------------------------------------------------------
Net realized gain on sales of investment
securities, foreign currencies and futures
contracts 16,155,941 6,958,471
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and futures contracts 35,953,703 36,611,035
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 53,023,653 44,091,011
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (536,874) (546,109)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (6,902,664) --
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 107,132,798 114,365,840
- ------------------------------------------------------------------------------
Net increase in net assets 152,716,913 157,910,742
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 370,063,165 212,152,423
- ------------------------------------------------------------------------------
End of year $522,780,078 $370,063,165
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $394,408,721 $287,275,923
- ------------------------------------------------------------------------------
Undistributed net investment income 876,543 491,407
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies and futures
contracts 15,712,724 6,467,448
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities
and futures contracts 111,782,090 75,828,387
- ------------------------------------------------------------------------------
$522,780,078 $370,063,165
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to the AIM V.I. Capital Appreciation Fund (the "Fund"). The Fund's investment
objective is to seek capital appreciation through investments in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
Currently, shares of the Fund are sold only to insurance company separate
accounts to fund the benefits of variable annuity contracts and variable life
insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The following is a summary of the significant accounting policies followed by
the Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date, or absent a last sales price, at the mean of the closing bid and
asked prices. Debt obligations (including convertible bonds) are valued on
the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market quotations are not readily available or are questionable are valued
at fair value as determined in good faith by or under the supervision of
the Company's officers in a manner specifically authorized by the Board of
Directors of the Company. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally 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
AIM V.I. CAPITAL APPRECIATION FUND
FS-9
<PAGE> 81
determined and the close of the New York Stock Exchange which will not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997,
undistributed net investment income was increased by $8,001 and
undistributed net realized gains decreased by $8,001 in order to comply
with the requirements of the American Institute of Certified Public
Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contract at the
end of each day's trading. Variation margin payments are made or received
depending upon whether unrealized gains or losses are incurred. When the
contracts are closed, the Fund recognizes a realized gain or loss equal to
the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Organizational Costs - Organizational costs for the Fund of $14,461 are
being amortized over five years.
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.
G. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
AIM, with respect to the Fund, the Company has agreed to reimburse certain
costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $43,588 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$5,296 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion
of the Fund's expenses related to pricing services used by the Fund which
reduced the Fund's expenses by $1,946 during the year ended December 31, 1997.
The Fund also received reductions in custodian fees of $3,211 under an expense
offset arrangement. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $5,157 during the year ended
December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest director's fees, if
so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1997 was
$405,928,809 and $281,447,431, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $131,285,959
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (20,124,306)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $111,161,653
===========================================================================
</TABLE>
Cost of investments for tax purposes is $404,634,128.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold 9,656,144 $202,278,514 7,080,357 $129,652,839
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 357,327 7,439,538 28,864 546,109
- -----------------------------------------------------------------------------
Reacquired (5,025,910) (102,585,254) (887,800) (15,833,108)
- -----------------------------------------------------------------------------
4,987,561 $107,132,798 6,221,421 $114,365,840
=============================================================================
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
FS-10
<PAGE> 82
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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>
DECEMBER 31, JANUARY 31,
---------------------------------- -----------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 19.43 $ 16.55 $ 12.05 $ 12.58 $ 10.00
- ----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.03 0.02 0.04 0.05 --
- ----------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.58 2.89 4.46 (0.54) 2.59
- ----------------------------------------------------------------------------------
Total from investment
operations 2.61 2.91 4.50 (0.49) 2.59
- ----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.02) (0.03) -- (0.04) (0.01)
- ----------------------------------------------------------------------------------
Dividends from net
realized gains (0.27) -- -- -- --
- ----------------------------------------------------------------------------------
Total distributions (0.29) (0.03) -- (0.04) (0.01)
- ----------------------------------------------------------------------------------
Net asset value, end of
period $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58
==================================================================================
Total return(a) 13.51% 17.58% 37.38% (3.91)% 25.90%
==================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $522,642 $370,063 $212,152 $88,177 $35,354
==================================================================================
Ratio of expenses to
average net assets 0.68%(b)(c) 0.73% 0.75%(d) 0.84% 1.06%(d)
==================================================================================
Ratio of net investment
income to average net
assets 0.18%(b) 0.18% 0.39%(d) 0.46% 0.07%(d)
==================================================================================
Portfolio turnover rate 65% 59% 37% 81% 34%
==================================================================================
Average brokerage
commission rate(e) $ 0.0577 $ 0.0592 N/A N/A N/A
==================================================================================
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $493,118,049.
(c) Ratio includes indirectly paid expenses. Excluding indirectly paid
expenses, the ratio of expenses to average net assets would have been the
same.
(d) Annualized.
(e) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
AIM V.I. CAPITAL APPRECIATION FUND
FS-11
<PAGE> 83
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Diversified Income Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Diversified Income Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994, in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. DIVERSIFIED INCOME FUND
FS-12
<PAGE> 84
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 65.11%
AGRICULTURAL PRODUCTS - 0.17%
Hines Horticulture, Inc., Series B Sr. Gtd. Sub.
Notes, 11.75%, 10/15/05 $ 140,000 $ 154,700
- -------------------------------------------------------------------------------
AIRLINES - 3.05%
Airplanes Pass Through Trust, Sub. Bonds, 10.875%,
03/15/19 300,000 337,689
- -------------------------------------------------------------------------------
America West Airlines, Pass Through Certificates,
6.86%, 07/02/04 882,000 888,632
- -------------------------------------------------------------------------------
Delta Air Lines, Inc., Deb., 9.00%,
05/15/16 825,000 975,488
- -------------------------------------------------------------------------------
United Air Lines, Inc., Pass Through Certificates,
9.56%, 10/19/18 425,000 522,640
- -------------------------------------------------------------------------------
2,724,449
- -------------------------------------------------------------------------------
AUTOMOBILES - 0.55%
General Motors Corp., Deb., 8.80%, 03/01/21 400,000 491,084
- -------------------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 1.02%
First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 800,000 913,944
- -------------------------------------------------------------------------------
BANKS (MONEY CENTER) - 1.55%
Bankers Trust New York Corp., Gtd. Notes, 7.875%,
02/25/27 600,000 618,579
- -------------------------------------------------------------------------------
Deutsche Bank Financial, Gtd. Unsec. Sub. Deb., 6.70%,
12/13/06 750,000 766,283
- -------------------------------------------------------------------------------
1,384,862
- -------------------------------------------------------------------------------
BANKS (REGIONAL) - 1.51%
Mercantile Bank,
Sub. Notes, 6.375%, 01/15/04 300,000 299,106
- -------------------------------------------------------------------------------
Unsec. Sub. Notes, 7.30%, 06/15/07 1,000,000 1,052,930
- -------------------------------------------------------------------------------
1,352,036
- -------------------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 1.27%
Coca-Cola Enterprises, Inc., Putable Notes, 6.72%,
06/20/20(b) 5,000,000 1,132,650
- -------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.18%
Cablevision Systems Corp., Sr. Notes, 7.875%, 12/15/07 500,000 513,125
- -------------------------------------------------------------------------------
Capstar Broadcasting Partners, Sr. Disc. Notes,
12.75%, 02/01/09(c) 490,000 355,250
- -------------------------------------------------------------------------------
Comcast Cable Communications, Notes, 8.50%, 05/01/27 500,000 583,750
- -------------------------------------------------------------------------------
Diamond Cable Communications PLC (United Kingdom), Sr.
Yankee Disc. Notes, 10.75%, 02/15/07(c) 1,160,000 794,600
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
BROADCASTING (TELEVISION, RADIO & CABLE) - (CONTINUED)
EchoStar DBS Corp., Sr. Sec. Gtd. Notes, 12.50%,
07/01/02 $ 430,000 $ 468,700
- -------------------------------------------------------------------------------
Knology Holdings Inc., Units, 11.875%, 10/15/07
(acquired 11/14/97; cost $310,500)(c)(d)(e) 600,000 327,000
- -------------------------------------------------------------------------------
Rifkin Acquisition Partners L.L.P., Sr. Sub. Notes,
11.125%, 01/15/06 100,000 111,000
- -------------------------------------------------------------------------------
TCI Communications Inc., Sr. Notes, 8.00%, 08/01/05 850,000 911,081
- -------------------------------------------------------------------------------
TeleWest Communications PLC (United Kingdom), Sr.
Yankee Disc. Deb., 11.00%, 10/01/07(c) 300,000 234,750
- -------------------------------------------------------------------------------
United International Holdings, Inc., Sr. Sec. Disc.
Notes, 10.53%, 11/15/99(b) 400,000 330,000
- -------------------------------------------------------------------------------
4,629,256
- -------------------------------------------------------------------------------
CHEMICALS - 3.70%
Nova Chemicals Ltd. (Canada), Yankee Deb., 7.00%,
08/15/26 750,000 770,925
- -------------------------------------------------------------------------------
Solutia Inc., Bonds, 6.72%, 10/15/37 750,000 763,148
- -------------------------------------------------------------------------------
Sterling Chemicals, Inc., Sr. Unsec. Sub. Notes,
11.75%, 08/15/06 220,000 225,500
- -------------------------------------------------------------------------------
Union Carbide Corp., Putable Deb., 6.79%, 06/01/25 1,500,000 1,540,800
- -------------------------------------------------------------------------------
3,300,373
- -------------------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.23%
Foamex International, Inc., Sr. Sub. Notes, 13.50%,
08/15/05 180,000 206,100
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.11%
Northern Telecom (Canada), Notes, 6.00%, 09/01/03 100,000 99,069
- -------------------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.34%
Commemorative Brands, Sr. Sub. Notes, 11.00%, 01/15/07 300,000 302,250
- -------------------------------------------------------------------------------
CONSUMER FINANCE - 2.10%
GMAC, Notes, 9.00%, 10/15/02 750,000 834,510
- -------------------------------------------------------------------------------
Household Finance Corp., Notes, 7.125%, 09/01/05 1,000,000 1,038,960
- -------------------------------------------------------------------------------
1,873,470
- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER) - 0.58%
MVE Inc., Sr. Sec. Notes, 12.50%, 02/15/02 190,000 190,475
- -------------------------------------------------------------------------------
Tekni-Plex Inc., Sr. Sub. Notes, 11.25%, 04/01/07 300,000 324,750
- -------------------------------------------------------------------------------
515,225
- -------------------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.38%
AmeriServ Food Co., Gtd. Sr. Sub. Notes, 10.125%,
07/15/07 320,000 337,600
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-13
<PAGE> 85
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
ELECTRIC COMPANIES - 0.81%
El Paso Electric Co.,
Series D Sec. First Mortgage Bonds, 8.90%, 02/01/06 $ 500,000 $ 553,575
- ------------------------------------------------------------------------------
Series E Sec. First Mortgage Bonds, 9.40%, 05/01/11 150,000 169,620
- ------------------------------------------------------------------------------
723,195
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.44%
Electronic Retailing Systems International, Inc., Sr.
Disc. Notes, 13.25%, 02/01/04(c) 590,000 395,300
- ------------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.20%
Advanced Micro Devices, Inc., Sr. Sec. Notes, 11.00%,
08/01/03 170,000 182,538
- ------------------------------------------------------------------------------
ENTERTAINMENT - 3.13%
Ascent Entertainment Group, Sr. Discount Notes,
11.875%, 12/15/04 (acquired 12/17/97-12/18/97; cost
$339,390)(c)(d) 600,000 351,000
- ------------------------------------------------------------------------------
Time Warner, Inc.,
Deb., 9.125%, 01/15/13 500,000 597,270
- ------------------------------------------------------------------------------
Notes, 8.18%, 08/15/07 750,000 823,665
- ------------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 500,000 506,925
- ------------------------------------------------------------------------------
Viacom, Inc., Sr. Notes, 7.75%, 06/01/05 500,000 513,855
- ------------------------------------------------------------------------------
2,792,715
- ------------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 2.69%
Associates Corp. of North America, Series B Sr. Deb.,
7.95%, 02/15/10 750,000 839,175
- ------------------------------------------------------------------------------
Finova Capital Corp., Unsec. Notes, 7.40%, 05/06/06 750,000 790,493
- ------------------------------------------------------------------------------
U.S. West Capital Funding Inc., Gtd. Notes, 6.95%,
01/15/37 750,000 775,403
- ------------------------------------------------------------------------------
2,405,071
- ------------------------------------------------------------------------------
FOODS - 2.03%
ConAgra Inc., Sr. Unsec. Notes, 7.125%, 10/01/26 1,300,000 1,385,332
- ------------------------------------------------------------------------------
Del Monte Corp./Foods Co., Sr. Unsec. Sub. Notes,
12.25%, 04/15/07 380,000 431,300
- ------------------------------------------------------------------------------
1,816,632
- ------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.68%
Coast Hotels & Casinos Inc., Series B Sec. First
Mortgage Gtd. Notes, 13.00%, 12/15/02 180,000 204,300
- ------------------------------------------------------------------------------
Venetian Casino Resort LLC, Mortgage Notes, 12.25%,
11/15/04 (acquired 11/06/97; cost $400,000)(d) 400,000 402,500
- ------------------------------------------------------------------------------
606,800
- ------------------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.86%
Tenet Healthcare Corp., Sr. Notes, 8.00%, 01/15/05 750,000 765,000
- ------------------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 1.21%
Paragon Health Network, Inc., Sr. Sub Notes, 10.50%,
11/01/07 (acquired 10/30/97; cost $416,899)(c)(d) 700,000 435,750
- ------------------------------------------------------------------------------
Sun Healthcare Group, Inc., Sr. Sub. Notes, 9.50%,
07/01/07 (acquired 07/01/97; cost $617,500)(d) 620,000 641,700
- ------------------------------------------------------------------------------
1,077,450
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.45%
Alaris Medical Systems, Sr. Unsec. Gtd. Sub. Deb.,
9.75%, 12/01/06 $ 300,000 $ 316,500
- -------------------------------------------------------------------------------
Dade International Inc., Series B Sr. Sub. Notes,
11.125%, 05/01/06 80,000 88,800
- -------------------------------------------------------------------------------
405,300
- -------------------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.36%
Dynacare Inc. (Canada), Sr. Yankee Notes, 10.75%,
01/15/06 300,000 317,250
- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.46%
Zeta Consumer Products, Sr. Notes, 11.25%, 11/30/07
(acquired 11/20/97; cost $400,000)(d) 400,000 409,000
- -------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.99%
Americo Life Inc., Sr. Sub. Notes, 9.25%, 06/01/05 75,000 77,063
- -------------------------------------------------------------------------------
Torchmark Corp., Notes, 7.875%, 05/15/23 750,000 808,005
- -------------------------------------------------------------------------------
885,068
- -------------------------------------------------------------------------------
IRON & STEEL - 0.69%
GS Industries, Inc., Sr. Gtd. Notes, 12.00%, 09/01/04 350,000 384,563
- -------------------------------------------------------------------------------
Gulf States Steel Corp., First Mortgage Notes, 13.50%,
04/15/03 230,000 233,450
- -------------------------------------------------------------------------------
618,013
- -------------------------------------------------------------------------------
LODGING - HOTELS - 1.95%
Booth Creek Ski Holdings, Sr. Notes, 12.50%, 03/15/07 390,000 384,150
- -------------------------------------------------------------------------------
ITT Corp., Unsec. Gtd. Deb., 7.375%, 11/15/15 750,000 770,663
- -------------------------------------------------------------------------------
John Q. Hammons Hotels Inc., Sec. First Mortgage
Notes, 9.75%, 10/01/05 550,000 585,750
- -------------------------------------------------------------------------------
1,740,563
- -------------------------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.49%
Elgin National Industries, Sr. Notes, 11.00%, 11/01/07
(acquired 11/03/97; cost $320,000)(d) 320,000 333,600
- -------------------------------------------------------------------------------
Fairfield Manufacturing Co., Inc., Sr. Sub. Notes,
11.375%, 07/01/01 100,000 106,000
- -------------------------------------------------------------------------------
439,600
- -------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.82%
MMI Products Inc., Sr. Unsec. Sub. Notes, 11.25%,
04/15/07 380,000 416,100
- -------------------------------------------------------------------------------
Simmons Co., Sr. Sub. Notes, 10.75%, 04/15/06 300,000 318,750
- -------------------------------------------------------------------------------
734,850
- -------------------------------------------------------------------------------
METALS MINING - 0.42%
Rio Algom Ltd. (Canada), Yankee Unsec. Deb., 7.05%,
11/01/05 370,000 377,337
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-14
<PAGE> 86
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NATURAL GAS - 1.98%
Enron Corp.,
Notes, 6.75%, 08/01/09 $ 750,000 $ 759,052
- -------------------------------------------------------------------------------
Sr. Sub. Deb., 6.75%, 07/01/05 450,000 453,577
- -------------------------------------------------------------------------------
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 525,000 559,125
- -------------------------------------------------------------------------------
1,771,754
- -------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.35%
United Stationer Supply, Sr. Sub. Notes, 12.75%,
05/01/05 275,000 314,187
- -------------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 0.98%
Gulf Canada Resources, Ltd. (Canada), Sr. Yankee
Unsec. Notes, 8.35%, 08/01/06 800,000 871,856
- -------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.07%
Falcon Drilling Co., Inc., Series B Sr. Notes, 9.75%,
01/15/01 60,000 63,150
- -------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.89%
Abraxas Petroleum Corp., Series B Sr. Notes, 11.50%,
11/01/04 125,000 137,500
- -------------------------------------------------------------------------------
Centaur Mining & Exploration, Ltd., Co. (Australia),
Sr. Gtd. Notes, 11.00%, 12/01/07 (acquired 11/24/97;
cost $550,000)(d) 550,000 555,500
- -------------------------------------------------------------------------------
Southwest Royalties, Inc., Sr. Gtd. Notes, 10.50%,
10/15/04 (acquired 10/08/97; cost $482,066)(d) 480,000 477,600
- -------------------------------------------------------------------------------
Talisman Energy, Inc. (Canada), Yankee Deb., 7.125%,
06/01/07 500,000 516,380
- -------------------------------------------------------------------------------
1,686,980
- -------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.06%
Indah Kiat Fin Mauritius (Indonesia), Sr. Gtd. Unsec.
Notes, 10.00%, 07/01/07 (acquired 06/26/97; cost
$635,821)(d) 640,000 534,400
- -------------------------------------------------------------------------------
Pindo Deli Pulp & Paper, Gtd. Notes, 10.75%, 10/01/07
(acquired 10/14/97-10/16/97; cost $473,250)(d) 470,000 406,550
- -------------------------------------------------------------------------------
940,950
- -------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.32%
Panda Global Energy Co. (China), Sr. Yankee Sec. Gtd.
Notes, 12.50%, 04/15/04 310,000 283,650
- -------------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 1.59%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 750,000 892,282
- -------------------------------------------------------------------------------
Sr. Gtd. Putable Bonds, 7.43%, 10/01/26 500,000 524,135
- -------------------------------------------------------------------------------
1,416,417
- -------------------------------------------------------------------------------
RAILROAD - 0.77%
Norfolk Southern Corp., Putable Bonds, 7.05%, 05/01/37 650,000 689,006
- -------------------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.23%
Loehmann's Holdings, Inc., Sr. Unsec. Notes, 11.875%,
05/15/03 200,000 208,500
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
RETAIL (FOOD CHAINS) - 0.96%
Great Atlantic & Pacific Tea Co., Inc. (Canada),
Yankee Gtd. Notes, 7.78%, 11/01/00 (acquired
10/18/95; cost $500,000)(d) $ 500,000 $ 516,452
- -------------------------------------------------------------------------------
Jitney-Jungle Stores of America Inc., Sr. Gtd. Notes,
12.00%, 03/01/06 300,000 341,250
- -------------------------------------------------------------------------------
857,702
- -------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.56%
Big 5 Corp., Sr. Notes, 10.875%, 11/15/07 (acquired
11/07/97-11/24/97; cost $497,484)(d) 500,000 500,000
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.80%
CSK Auto Inc., Sr. Gtd. Sub. Deb., 11.00%, 11/01/06 100,000 110,500
- -------------------------------------------------------------------------------
Icon Health & Fitness, Series B Sr. Sub. Notes,
13.00%, 07/15/02 150,000 168,375
- -------------------------------------------------------------------------------
United Auto Group, Inc., Sr. Sub. Notes, 11.00%,
07/15/07 (acquired 07/22/97; cost $296,250)(d) 300,000 296,250
- -------------------------------------------------------------------------------
Wilson's - The Leather Experts, Inc., Sr. Notes,
11.25%, 08/15/04 (acquired 08/14/97; cost
$140,000)(d) 140,000 138,600
- -------------------------------------------------------------------------------
713,725
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.24%
J. Crew Operating Corp., Sr. Sub. Notes, 10.375%,
10/15/07 (acquired 10/14/97; cost $240,000)(d) 240,000 213,600
- -------------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.47%
Sovereign Bancorp, Inc., Sub. Notes, 8.00%, 03/15/03 400,000 421,488
- -------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.36%
MDC Communications Corp. (Canada), Sr. Yankee Unsec.
Sub. Notes, 10.50%, 12/01/06 300,000 318,750
- -------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.59%
Dialog Corp. PLC (United Kingdom), Sr. Sub. Notes,
11.00%, 11/15/07 (acquired 11/10/97; cost
$350,000)(d) 350,000 364,875
- -------------------------------------------------------------------------------
Laidlaw Inc. (Canada), Yankee Deb., 6.65%, 10/01/04 550,000 553,899
- -------------------------------------------------------------------------------
Pegasus Shipping Hellas, Co. (Bermuda), Gtd. Sr.
Mortgage Notes, 11.875%, 11/15/04 (acquired 11/19/97;
cost $483,000)(d) 500,000 497,500
- -------------------------------------------------------------------------------
1,416,274
- -------------------------------------------------------------------------------
SHIPPING - 1.15%
Hutchison Whampoa Ltd. (Cayman Islands), Series D Sr.
Yankee Gtd. Unsec. Unsub. Deb., 6.988%, 08/01/37
(acquired 10/02/97; cost $753,008)(d) 750,000 700,830
- -------------------------------------------------------------------------------
Stena A.B. (Sweden), Sr. Yankee Unsec. Notes, 10.50%,
12/15/05 300,000 327,750
- -------------------------------------------------------------------------------
1,028,580
- -------------------------------------------------------------------------------
SOVEREIGN DEBT - 1.81%
Province of Manitoba (Canada), Yankee Bonds, 7.75%,
07/17/16 700,000 801,290
- -------------------------------------------------------------------------------
Province of Quebec (Canada), Yankee Deb., 6.29%, 03/06/26 800,000 816,920
- -------------------------------------------------------------------------------
1,618,210
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-15
<PAGE> 87
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 2.46%
Clearnet Communications Inc. (Canada), Sr. Yankee
Unsec. Disc. Notes, 14.75%, 12/15/05(c) $ 110,000 $ 88,137
- --------------------------------------------------------------------------------
GST Equipment Funding, Sr. Sec. Notes, 13.25%, 05/01/07 300,000 342,750
- --------------------------------------------------------------------------------
Nextel Communications, Sr. Disc. Notes, 9.75%, 10/31/07
(acquired 10/22/97-10/23/97; cost $602,450)(c)(d) 1,000,000 620,000
- --------------------------------------------------------------------------------
Orion Network Systems, Inc., Units, 11.25%, 01/15/07(f) 580,000 659,750
- --------------------------------------------------------------------------------
Pricellular Wireless Corp., Sr. Notes, 10.75%, 11/01/04 230,000 251,275
- --------------------------------------------------------------------------------
Sygnet Wireless Inc., Sr. Unsec. Notes, 11.50%,
10/01/06 220,000 238,700
- --------------------------------------------------------------------------------
2,200,612
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.80%
Bell Canada, Yankee Deb., 9.50%, 10/15/10 (Canada) 350,000 440,821
- --------------------------------------------------------------------------------
Esprit Telecom Group PLC (United Kingdom), Sr. Yankee
Notes, 11.50%, 12/15/07 350,000 362,250
- --------------------------------------------------------------------------------
MCI Communications Corp., Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 650,000 680,251
- --------------------------------------------------------------------------------
PhoneTel Technologies, Inc., Sr. Unsec. Gtd. Notes,
12.00%, 12/15/06 120,000 125,100
- --------------------------------------------------------------------------------
1,608,422
- --------------------------------------------------------------------------------
TELEPHONE - 0.62%
ESAT Holdings Ltd. (Ireland), Sr. Yankee Notes, 12.50%,
02/01/07(c) 470,000 338,400
- --------------------------------------------------------------------------------
Hermes Europe Railtel BV (Netherlands), Sr. Yankee
Notes, 11.50%, 08/15/07 (acquired 08/14/97; cost
$193,238)(d) 190,000 211,850
- --------------------------------------------------------------------------------
550,250
- --------------------------------------------------------------------------------
TRUCKERS - 0.80%
AmeriTruck Distribution Corp., Series B Sr. Sub. Notes,
12.25%, 11/15/05 300,000 298,500
- --------------------------------------------------------------------------------
Travelcenters of America Inc., Sr. Gtd. Unsec. Sub.
Deb., 10.25%, 04/01/07 400,000 422,000
- --------------------------------------------------------------------------------
720,500
- --------------------------------------------------------------------------------
TRUCKS & PARTS - 0.13%
Blue Bird Body Co., Series B Sr. Sub. Notes, 10.75%,
11/15/06 110,000 118,800
- --------------------------------------------------------------------------------
WASTE MANAGEMENT - 1.70%
Allied Waste Industries, Inc., Sr. Disc. Notes, 11.30%,
06/01/07 (acquired 05/01/97; cost $516,924)(c)(d) 900,000 636,750
- --------------------------------------------------------------------------------
WMX Technologies, Inc., Unsec. Notes, 7.10%, 08/01/26 850,000 879,725
- --------------------------------------------------------------------------------
1,516,475
- --------------------------------------------------------------------------------
Total U.S. Dollar Denominated Non-Convertible Bonds &
Notes 58,158,588
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NON-U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 9.89%(g)
CANADA - 5.74%
Bank of Montreal (Banks - Money Center), Sub. Deb.,
7.92%, 07/31/12 CAD 850,000 $ 670,323
- -------------------------------------------------------------------------------
Bell Mobility Cellular Inc. (Telecommunications -
Cellular/Wireless), Deb., 6.55%, 06/02/08 750,000 528,320
- -------------------------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas - Exploration &
Production), Deb., 11.00%, 10/31/00 450,000 352,965
- -------------------------------------------------------------------------------
Clearnet Communications Inc. (Telecommunications -
Cellular/Wireless), Sr. Disc. Notes, 11.75%,
08/13/07 (acquired 07/31/97-11/04/97; cost
$630,905)(c)(d) 1,500,000 666,527
- -------------------------------------------------------------------------------
Microcell Telecommunications (Telecommunications -
Cellular/Wireless), Sr. Disc. Notes, 11.125%,
10/15/07 (acquired 10/08/97; cost $424,107)(c)(d) 1,000,000 388,370
- -------------------------------------------------------------------------------
NAV Canada (Services - Commercial & Consumer), Bonds,
7.40%, 06/01/27 1,000,000 798,642
- -------------------------------------------------------------------------------
Telegobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 850,000 660,086
- -------------------------------------------------------------------------------
Trans-Canada Pipelines (Natural Gas),
Series Q Deb., 10.625%, 10/20/09 500,000 475,953
- -------------------------------------------------------------------------------
Unsec. Medium Term Notes, 8.55%, 02/01/06 280,000 226,819
- -------------------------------------------------------------------------------
Westcoast Energy, Inc. (Oil & Gas - Exploration &
Production), Deb., 6.45%, 12/18/06 (acquired
12/18/96; cost $369,585)(d) 500,000 358,770
- -------------------------------------------------------------------------------
5,126,775
- -------------------------------------------------------------------------------
GERMANY - 2.94%
Daimler-Benz A.G. (Automobiles), Gtd. Unsub.
Eurobonds, 4.125%, 07/05/03 DEM 570,000 443,580
- -------------------------------------------------------------------------------
International Bank for Reconstruction & Development
(Banks-Money Center), Unsec. Global Bonds, 7.125%,
04/12/05)(b) 725,000 446,324
- -------------------------------------------------------------------------------
LKB Global (Financial-Diversified), Gtd. Notes,
6.00%, 01/25/06 3,000,000 1,728,460
- -------------------------------------------------------------------------------
2,618,364
- -------------------------------------------------------------------------------
NEW ZEALAND - 0.32%
International Bank for Reconstruction & Development
(Banks-Money Center), Sr. Notes, 13.31%, 08/20/07(b) NZD1,000,000 288,693
- -------------------------------------------------------------------------------
UNITED KINGDOM - 0.89%
Sutton Bridge Financial Ltd. (Financial-Diversified),
Gtd. Eurobonds, 8.625%, 06/30/22 (acquired 05/29/97;
cost $733,585)(d) GBP 450,000 799,106
- -------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Non-Convertible
Bonds & Notes 8,832,938
- -------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS &
NOTES - 2.42%(g)
FRANCE - 0.32%
Societe Generale (Banks-Money Center), Conv. Deb.,
3.50%, 01/01/00 FRF1,419,000 288,352
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-16
<PAGE> 88
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
JAPAN - 1.13%
Matsushita Electric Industrial Co. Ltd.
(Electrical Equipment), Conv. Bonds, 1.30%,
03/29/02 JPY 50,000,000 $ 475,798
- ----------------------------------------------------------------------------
Sony Corp. (Electrical Equipment), Conv. Deb.,
1.40%, 03/31/05 8,000,000 90,986
- ----------------------------------------------------------------------------
Toyota Motor Corp. (Automobiles), Conv. Bonds,
1.20%, 01/28/98 30,000,000 438,845
- ----------------------------------------------------------------------------
1,005,629
- ----------------------------------------------------------------------------
UNITED KINGDOM - 0.97%
British Airport Authority PLC (Airlines), Conv.
Bonds, 5.75%, 03/29/06 GBP 500,000 866,340
- ----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Convertible
Bonds & Notes 2,160,321
- ----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
GOVERNMENT BONDS & NOTES - 15.51%(g)
AUSTRALIA - 0.67%
Queensland Treasury Corp., Gtd. Bonds, 6.50%,
06/14/05 AUD 900,000 600,090
- ----------------------------------------------------------------------------
CANADA - 2.91%
Canadian Government, Bonds, 7.00%, 12/01/06 CAD 1,000,000 767,454
- ----------------------------------------------------------------------------
Municipal Finance Authority of British Columbia,
Unsec. Bonds, 7.75%, 12/01/05 500,000 393,356
- ----------------------------------------------------------------------------
Ontario Province
Sr. Unsec. Unsub. Deb, 6.875%, 09/15/00 GBP 465,000 759,821
- ----------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Bonds, 8.00%, 03/11/03 CAD 750,000 581,521
- ----------------------------------------------------------------------------
Quebec (Province of), Deb., 9.375%, 01/16/23 100,000 95,116
- ----------------------------------------------------------------------------
2,597,268
- ----------------------------------------------------------------------------
GERMANY - 0.68%
Bundesrepublic Deutschland, Bonds, 6.875%,
05/12/05 DEM 1,000,000 610,962
- ----------------------------------------------------------------------------
ITALY - 0.35%
Republic of Italy, Conv. Eurobonds, 6.50%,
06/28/01 ITL400,000,000 312,323
- ----------------------------------------------------------------------------
NEW ZEALAND - 3.08%
Federal National Mortgage Association, Notes,
7.25%, 06/20/02 NZD 1,250,000 710,149
- ----------------------------------------------------------------------------
New Zealand Government,
Bonds, 8.00%, 02/15/01 750,000 442,479
- ----------------------------------------------------------------------------
Bonds, 10.00%, 03/15/02 1,800,000 1,144,973
- ----------------------------------------------------------------------------
Bonds, 8.00%, 04/15/04 750,000 454,128
- ----------------------------------------------------------------------------
2,751,729
- ----------------------------------------------------------------------------
SWEDEN - 2.75%
Swedish Government,
Bonds, 10.25%, 05/05/03 SEK 6,000,000 911,044
- ----------------------------------------------------------------------------
Bonds, 6.00%, 02/09/05 6,000,000 762,225
- ----------------------------------------------------------------------------
Bonds, 6.50%, 10/25/06 6,000,000 783,516
- ----------------------------------------------------------------------------
2,456,785
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
UNITED KINGDOM - 5.07%
Federal National Mortgage Association, Sr. Unsec.
Notes, 6.875%, 06/07/02 GBP 450,000 $ 741,312
- -------------------------------------------------------------------------------
United Kingdom Treasury,
Bonds, 8.00%, 12/07/00 400,000 679,729
- -------------------------------------------------------------------------------
Bonds, 7.50% 12/07/06 450,000 795,991
- -------------------------------------------------------------------------------
Gtd. Notes, 7.25%, 03/30/98 1,000,000 1,643,122
- -------------------------------------------------------------------------------
Gtd. Notes, 7.00%, 11/06/01 400,000 664,639
- -------------------------------------------------------------------------------
4,524,793
- -------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Government Bonds & Notes 13,853,950
- -------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 2.25%
BANKS (REGIONAL) - 0.60%
Westpac Banking Corp. STRYPES Trust - $3.135 Conv.
Pfd. 16,000 536,000
- -------------------------------------------------------------------------------
ENTERTAINMENT - 0.00%
Time Warner Inc.-Series M, $102.50 PIK Conv. Pfd. 1 1,154
- -------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.40%
Conseco Inc.-$4.278 Conv. PRIDES 8,000 1,248,000
- -------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.25%
Citizens Utilities Co.-$2.50 Conv. Pfd. 4,700 224,425
- -------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 2,009,579
- -------------------------------------------------------------------------------
COMMON STOCK - 0.02%
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02%
Nextel Communications, Inc. 743 19,318
- -------------------------------------------------------------------------------
WARRANTS - 0.05%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.00%
Wireless One, Inc., expiring 10/19/00(h) 420 0
- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.01%
Electronic Retailing Systems, expiring 01/24/98(h) 590 11,800
- -------------------------------------------------------------------------------
GAMING, LOTTERY & PARI-MUTUEL COMPANIES - 0.00%
Boomtown, Inc., expiring 11/01/98 (acquired 11/03/93;
cost $0)(d)(h) 150 2
- -------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.01%
MVE Inc., expiring 02/15/02(h) 190 5,700
- -------------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel Corp., expiring 04/15/03(h) 230 1,035
- -------------------------------------------------------------------------------
PERSONAL CARE - 0.01%
IHF Capital Inc., expiring 11/14/99 (acquired
11/04/94-12/07/94; cost $150)(d)(h) 150 7,575
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
FS-17
<PAGE> 89
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02%
Clearnet Communications Inc. (Canada), expiring
09/15/05(h) 891 $ 8,464
- ---------------------------------------------------------------------------
Orion Network Systems, Inc., expiring 01/15/07(h) 580 8,120
- ---------------------------------------------------------------------------
16,584
- ---------------------------------------------------------------------------
TELEPHONE - 0.00%
ESAT Holdings Ltd, expiring 02/01/07 (acquired
06/16/97; cost $0)(d)(h) 470 1,763
- ---------------------------------------------------------------------------
Total Warrants 44,459
- ---------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES - 0.46%
Notes, 6.50%, 05/31/01 $ 400,000 409,740
- ---------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 0.69%
Tennessee Valley Authority, Bonds, 5.98%, 04/01/36 600,000 614,082
- ---------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.08%(i)
Smith Barney, Inc. 6.75%, 01/02/98(j) 966,742 966,742
- ---------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.48% 87,069,717
- ---------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.52% 2,248,935
- ---------------------------------------------------------------------------
NET ASSETS - 100.00% $89,318,652
===========================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Principal amount is in U.S. Dollars, except as indicated by note (g).
(b) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount
(c) Discounted bond at purchase. The interest rate represents the coupon rate
at which the bond will accrue at a specified future date.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/97 was $11,793,420
which represented 13.20% of the Fund's net assets.
(e) Issued as a unit. This unit includes one Sr. Note plus one warrant to
purchase 0.003734 shares of preferred stock.
(f) Issued as a unit. This unit includes one Sr. Note plus warrants to purchase
0.8463 shares of common stock.
(g) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(h) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(i) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(j) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S.Government obligations, 0%
to 13.875%, due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations:
AUD - Australian Dollar PIK - Payment in Kind
CAD - Canadian Dollar Pfd. - Preferred
Conv. - Convertible PRIDES - Preferred Redeemable Increased Dividend
Deb. - Debenture Equity Security
DEM - German Deutschemark Sec. - Secured
Disc. - Discounted SEK - Swedish Krona
FRF - French Franc Sr. - Senior
GBP - British Pound Sterling STRYPES- Structured Yield Product Exchangeable
Gtd. - Guaranteed for Stock
ITL - Italian Lire Sub. - Subordinated
JPY - Japanese Yen Unsec. - Unsecured
NZD - New Zealand Dollar Unsub. - Unsubordinated
Wt. - Warrants
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-18
<PAGE> 90
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $84,751,367) $87,069,717
- ---------------------------------------------------------------------
Foreign currencies, at market value (cost $72,375) 72,202
- ---------------------------------------------------------------------
Receivables for:
Forward currency contracts 509,198
- ---------------------------------------------------------------------
Capital stock sold 75,556
- ---------------------------------------------------------------------
Dividends and interest 1,662,634
- ---------------------------------------------------------------------
Investment for deferred compensation plan 16,957
- ---------------------------------------------------------------------
Organizational costs, net 965
- ---------------------------------------------------------------------
Other assets 126
- ---------------------------------------------------------------------
Total assets 89,407,355
- ---------------------------------------------------------------------
LIABILITIES:
Payable for deferred compensation plan 16,957
- ---------------------------------------------------------------------
Accrued advisory fees 44,572
- ---------------------------------------------------------------------
Accrued administrative service fees 4,150
- ---------------------------------------------------------------------
Accrued directors' fees 2,234
- ---------------------------------------------------------------------
Accrued operating expenses 20,790
- ---------------------------------------------------------------------
Total liabilities 88,703
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $89,318,652
=====================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 7,914,436
=====================================================================
Net asset value, offering and redemption price per share $ 11.29
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $5,682,303
- -------------------------------------------------------------------------------
Dividends 64,710
- -------------------------------------------------------------------------------
Total investment income 5,747,013
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 447,539
- -------------------------------------------------------------------------------
Administrative services fees 48,683
- -------------------------------------------------------------------------------
Custodian fees 39,847
- -------------------------------------------------------------------------------
Directors' fees and expenses 8,076
- -------------------------------------------------------------------------------
Organizational costs 2,892
- -------------------------------------------------------------------------------
Other 51,031
- -------------------------------------------------------------------------------
Total expenses 598,068
- -------------------------------------------------------------------------------
Less: Expenses paid indirectly (1,513)
- -------------------------------------------------------------------------------
Net expenses 596,555
- -------------------------------------------------------------------------------
Net investment income 5,150,458
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FORWARD CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities 676,109
- -------------------------------------------------------------------------------
Foreign currencies (439,310)
- -------------------------------------------------------------------------------
Forward currency contracts 838,669
- -------------------------------------------------------------------------------
1,075,468
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 282,391
- -------------------------------------------------------------------------------
Foreign currencies (9,268)
- -------------------------------------------------------------------------------
Forward currency contracts 422,581
- -------------------------------------------------------------------------------
695,704
- -------------------------------------------------------------------------------
Net gain on investment securities, foreign currencies and forward
currency contracts 1,771,172
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,921,630
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
FS-19
<PAGE> 91
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,150,458 $ 3,620,192
- -----------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies and forward currency contracts 1,075,468 967,204
- -----------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies and forward
currency contracts 695,704 685,218
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 6,921,630 5,272,614
- -----------------------------------------------------------------------------
Distributions to shareholders from net investment
income (77,788) (3,857,482)
- -----------------------------------------------------------------------------
Net equalization credits -- 905,775
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 18,851,039 16,672,719
- -----------------------------------------------------------------------------
Net increase in net assets 25,694,881 18,993,626
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 63,623,771 44,630,145
- -----------------------------------------------------------------------------
End of year $89,318,652 $63,623,771
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $80,655,246 $59,753,245
- -----------------------------------------------------------------------------
Undistributed net investment income 4,195,077 1,655,895
- -----------------------------------------------------------------------------
Undistributed net realized gain on investment
securities, foreign currencies and forward
currency contracts 1,653,803 95,809
- -----------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and forward currency contracts 2,814,526 2,118,822
- -----------------------------------------------------------------------------
$89,318,652 $63,623,771
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to the AIM V.I. Diversified Income Fund (the "Fund"). The Fund's investment
objective is to seek to achieve a high level of current income. The Fund will
seek to achieve its objective by investing primarily in a diversified
portfolio of foreign and U.S. government and corporate debt securities,
including lower rated high yield debt securities (commonly known as "junk
bonds"). These high yield bonds may involve special risks in addition to the
risks associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market in which high yield bonds are traded may be less liquid than the market
for higher grade bonds. Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--Debt obligations are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as institution-size trading in similar
groups of securities, developments related to special securities, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Investment securities for which
prices are not provided by the pricing service and which are listed or
traded on an exchange are valued at the last sales price on the exchange
where the security is principally traded or, lacking any sales on a
particular day, at the mean between the closing bid and asked prices on
that day unless the Board of Directors, or persons designated by the Board
of Directors, determines that the over-the-counter quotations more closely
reflect the current market value of the security. Securities traded in the
over-the-counter market, except (i) securities priced by the pricing
service, (ii) securities for which representative exchange prices are
available, and (iii) securities reported in the NASDAQ National Market
System, are valued at the mean between representative last bid and asked
prices obtained from
AIM V.I. DIVERSIFIED INCOME FUND
FS-20
<PAGE> 92
an electronic quotation reporting system, if such prices are available, or
from established market makers. Each security reported in the NASDAQ National
Market System is valued at the last sales price on the valuation date or
absent a last sales price, at the mean of the closing bid and asked prices.
Securities for which market quotations are either not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Fund's officers in accordance with methods which
are specifically authorized by the Board of Directors. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities as well
as corporate bonds and U.S. Government securities is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under
the supervision of the Board of Directors.
B. Foreign Currency Translation - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions.
C. Foreign Currency Contracts - A foreign currency contract is an obligation to
purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a currency contract for the
amount of a purchase or sale of a security denominated in a foreign currency
in order to "lock-in" the U.S. dollar price of that security. The Fund could
be exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
Outstanding contracts at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO
SETTLEMENT ---------------------- UNREALIZED
DATE DELIVER RECEIVE VALUE APPRECIATION
- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
01/14/98 JPY 5,000,000 $ 41,841 $ 38,294 $ 3,547
01/28/98 DEM 3,350,000 1,894,796 1,865,325 29,471
01/29/98 SEK 19,000,000 2,554,450 2,395,003 159,447
01/30/98 GBP 1,375,000 2,296,800 2,267,448 29,352
02/06/98 JPY 31,000,000 257,903 237,433 20,470
02/18/98 NZD 3,800,000 2,367,400 2,209,406 157,994
02/20/98 DEM 2,400,000 1,402,361 1,338,028 64,333
02/27/98 GBP 1,400,000 2,339,302 2,316,645 22,657
03/05/98 JPY 93,000,000 733,207 712,328 20,879
03/19/98 NZD 1,400,000 814,800 814,585 215
03/31/98 GBP 1,000,000 1,663,250 1,662,417 833
----------- ----------- --------
$16,366,110 $15,856,912 $509,198
========
</TABLE>
D. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. It is the policy of the Fund not to amortize premiums on
bonds for financial reporting purposes. Realized gains or losses from
securities transactions are recorded on the identified cost basis. On
December 31, 1997, undistributed net investment income was reduced by
$482,526 and undistributed net realized gains increased by $482,526 in order
to comply with the requirements of the American Institute of Certified
Public Accountants Statement of Position 93-2. Net assets of the Fund were
unaffected by the reclassifications discussed above.
E. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
F. Equalization - The Fund previously followed the accounting practice known as
equalization by which a portion of the proceeds from sales and 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 the undistributed net
investment income per share is unaffected by sales or redemptions of Fund
shares. During the year ended December 31, 1997, the Fund discontinued
equalization accounting and reclassified the cumulative equalization debits
of $2,050,962 from undistributed net investment income to paid-in capital.
This change has no effect on the net assets, the results of operations or
net asset value per share of the Fund.
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.
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 year ended December 31, 1997, AIM was reimbursed $48,683 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,400 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to
the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion of
the Fund's expenses related to pricing services used by the Fund which reduced
the Fund's expenses by $290 during the year ended December 31, 1997. The Fund
also received reductions in custodian fees of $1,223 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $1,513 during the year ended December 31, 1997.
AIM V.I. DIVERSIFIED INCOME FUND
FS-21
<PAGE> 93
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest directors' fees,
if so elected by a director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $61,998,858 and $37,621,437, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $4,207,440
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,889,813)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $2,317,627
=========================================================================
</TABLE>
Cost of investments for tax purposes is $84,752,090.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,860,755 $ 30,505,544 2,366,508 $ 22,865,918
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 6,908 77,788 377,444 3,857,482
- ------------------------------------------------------------------------------
Reacquired (1,114,698) (11,732,293) (1,044,208) (10,050,681)
- ------------------------------------------------------------------------------
1,752,965 $ 18,851,039 1,699,744 $ 16,672,719
==============================================================================
</TABLE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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>
DECEMBER 31, JANUARY 31,
------------------------------- -----------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.33 $ 10.00 $ 9.12 $ 10.46 $ 10.00
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.73 0.73 0.69 0.76 0.54
- -----------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.24 0.28 0.94 (1.42) 0.29
- -----------------------------------------------------------------------------------
Total from investment
operations 0.97 1.01 1.63 (0.66) 0.83
- -----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.01) (0.68) (0.75) (0.68) (0.35)
- -----------------------------------------------------------------------------------
Distributions from net
realized capital
gains -- -- -- -- (0.02)
- -----------------------------------------------------------------------------------
Total distributions (0.01) (0.68) (0.75) (0.68) (0.37)
- -----------------------------------------------------------------------------------
Net asset value, end of
period $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46
===================================================================================
Total return(a) 9.39% 10.19% 18.11% (6.35)% 8.33%
===================================================================================
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $89,319 $63,624 $44,630 $25,271 $14,530
===================================================================================
Ratio of expenses to
average net assets(b) 0.80%(c)(d) 0.86% 0.88%(e) 0.91% 1.05%(e)
===================================================================================
Ratio of net investment
income to average net
assets(f) 6.90%(c) 7.09% 7.65%(e) 8.07% 6.78%(e)
===================================================================================
Portfolio turnover rate 52% 76% 72% 100% 57%
===================================================================================
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.03% and 1.69% (annualized) for January 31, 1995 and 1994, respectively.
(c) Ratios are based on average net assets of $74,589,876.
(d) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have
remained the same.
(e) Annualized.
(f) After fee waivers and/or expense reimbursement. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 7.95% and 6.14% (annualized) for January 31, 1995 and
1994, respectively.
AIM V.I. DIVERSIFIED INCOME FUND
FS-22
<PAGE> 94
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Global Utilities Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1997, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the
period then ended, the eleven month period ended December 31, 1995 and the
period May 2, 1994 (commencement of operations) through January 31, 1995.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, 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. Global Utilities Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995 and the period May 2, 1994 (commencement of operations)
through January 31, 1995, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GLOBAL UTILITIES FUND
FS-23
<PAGE> 95
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 44.14%
BROADCASTING (TELEVISION, RADIO, & CABLE) - 0.54%
Univision Communications Inc.(a) 1,700 $ 118,681
- ---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.65%
ADC Telecommunications, Inc.(a) 4,800 200,400
- ---------------------------------------------------------------------
Excel Switching Corp(a) 400 7,150
- ---------------------------------------------------------------------
Lucent Technologies, Inc. 2,000 159,750
- ---------------------------------------------------------------------
NEXTLINK Communications, Inc.-Class A(a) 1,100 23,444
- ---------------------------------------------------------------------
Qwest Communications International Inc.(a) 2,200 130,900
- ---------------------------------------------------------------------
Tellabs, Inc.(a) 1,200 63,450
- ---------------------------------------------------------------------
585,094
- ---------------------------------------------------------------------
ELECTRIC COMPANIES - 14.74%
Allegheny Energy, Inc. 8,300 269,750
- ---------------------------------------------------------------------
Carolina Power & Light Co. 4,400 186,725
- ---------------------------------------------------------------------
CINergy Corp. 4,500 172,406
- ---------------------------------------------------------------------
DQE, Inc. 7,700 270,462
- ---------------------------------------------------------------------
Edison International 4,800 130,500
- ---------------------------------------------------------------------
FPL Group, Inc. 6,200 366,963
- ---------------------------------------------------------------------
IPALCO Enterprises, Inc. 2,000 83,875
- ---------------------------------------------------------------------
New Century Energies, Inc. 4,600 220,513
- ---------------------------------------------------------------------
New York State Electric & Gas Corp. 5,000 177,500
- ---------------------------------------------------------------------
NIPSCO Industries, Inc. 6,000 296,625
- ---------------------------------------------------------------------
Pinnacle West Capital Corp. 11,400 483,075
- ---------------------------------------------------------------------
Public Service Company of New Mexico 3,600 85,275
- ---------------------------------------------------------------------
Sierra Pacific Resources 3,300 123,750
- ---------------------------------------------------------------------
Southern Co. 8,200 212,175
- ---------------------------------------------------------------------
Teco Energy, Inc. 6,200 174,375
- ---------------------------------------------------------------------
3,253,969
- ---------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.45%
Superior TeleCom Inc.(a) 2,900 100,230
- ---------------------------------------------------------------------
NATURAL GAS - 7.97%
Coastal Corp. (The) 1,400 86,713
- ---------------------------------------------------------------------
Columbia Gas System, Inc. 2,000 157,125
- ---------------------------------------------------------------------
El Paso Natural Gas Co. 7,800 518,700
- ---------------------------------------------------------------------
Energen Corp. 1,400 55,650
- ---------------------------------------------------------------------
KN Energy, Inc. 2,700 145,800
- ---------------------------------------------------------------------
Public Service Company of North Carolina, Inc. 3,000 68,625
- ---------------------------------------------------------------------
Sonat, Inc. 5,100 233,325
- ---------------------------------------------------------------------
Williams Companies, Inc. (The) 17,400 493,725
- ---------------------------------------------------------------------
1,759,663
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
POWER PRODUCERS (INDEPENDENT) - 1.12%
AES Corp.(a) 2,000 $ 93,250
- ------------------------------------------------------------------------
Calenergy, Inc.(a) 5,400 155,250
- ------------------------------------------------------------------------
248,500
- ------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 4.45%
Alexandria Real Estate Equities, Inc. 2,300 72,594
- ------------------------------------------------------------------------
Boston Properties, Inc. 3,100 102,493
- ------------------------------------------------------------------------
Cali Realty Corp. 3,100 127,100
- ------------------------------------------------------------------------
Captec Net Lease Realty, Inc. 2,900 49,844
- ------------------------------------------------------------------------
CCA Prison Realty Trust(a) 3,000 133,875
- ------------------------------------------------------------------------
Crescent Real Estate Equities, Co. 1,600 63,000
- ------------------------------------------------------------------------
Entertainment Properties Trust(a) 2,200 42,625
- ------------------------------------------------------------------------
Golf Trust of America, Inc. 800 23,200
- ------------------------------------------------------------------------
Imperial Credit Commercial Mortgage Investment Corp. 2,200 32,175
- ------------------------------------------------------------------------
Meditrust Corp. 1,562 57,208
- ------------------------------------------------------------------------
Parkway Properties, Inc. 1,100 37,744
- ------------------------------------------------------------------------
Patriot American Hospitality, Inc. 4,199 120,984
- ------------------------------------------------------------------------
Public Storage, Inc. 1,500 44,063
- ------------------------------------------------------------------------
Starwood Lodging Trust 1,300 75,237
- ------------------------------------------------------------------------
982,142
- ------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.28%
IXC Communications, Inc.(a) 2,600 81,575
- ------------------------------------------------------------------------
WinStar Communications, Inc.(a) 4,500 112,219
- ------------------------------------------------------------------------
WorldCom, Inc.(a) 2,968 89,782
- ------------------------------------------------------------------------
283,576
- ------------------------------------------------------------------------
TELEPHONE - 10.94%
Ameritech Corp. 5,100 410,550
- ------------------------------------------------------------------------
BellSouth Corp. 6,900 388,556
- ------------------------------------------------------------------------
Century Telephone Enterprises 5,200 259,025
- ------------------------------------------------------------------------
Cincinnati Bell, Inc. 18,500 573,500
- ------------------------------------------------------------------------
Electric Lightwave, Inc.-Class A(a) 6,300 93,712
- ------------------------------------------------------------------------
GTE Corp. 2,600 135,850
- ------------------------------------------------------------------------
McLeodUSA Inc.-Class A(a) 2,700 86,400
- ------------------------------------------------------------------------
SBC Communications, Inc. 4,500 329,625
- ------------------------------------------------------------------------
Teleport Communications Group Inc.-Class A(a) 2,500 137,188
- ------------------------------------------------------------------------
2,414,406
- ------------------------------------------------------------------------
Total Domestic Common Stocks 9,746,261
- ------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 2.60%
INVESTMENT BANKING/BROKERAGE - 0.11%
Salomon Inc.-$3.48 Conv. Pfd. 400 23,700
- ------------------------------------------------------------------------
NATURAL GAS - 0.43%
MCN Corp.-$2.013 Conv. Pfd. PRIDES 2,800 95,900
- ------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-24
<PAGE> 96
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
POWER PRODUCERS (INDEPENDENT) - 1.39%
AES Trust I-$2.69 Conv. Pfd. 3,000 $ 215,250
- ------------------------------------------------------------------------------
AES Trust II-$2.75 Conv. Pfd. (Acquired 10/24/97;
Cost $60,000)(b) 1,200 62,550
- ------------------------------------------------------------------------------
Citizens Utilities Co.-$2.50 Conv. Pfd. 600 28,650
- ------------------------------------------------------------------------------
306,450
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.67%
WorldCom, Inc.-$2.68 Conv. Pfd. 1,400 147,000
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 573,050
- ------------------------------------------------------------------------------
DOMESTIC NON-CONVERTIBLE PREFERRED STOCKS - 0.30%
ENTERTAINMENT - 0.30%
Time Warner Inc.-Series M, $102.50 PIK Pfd. 58 65,767
- ------------------------------------------------------------------------------
Total Domestic Non-Convertible Preferred Stocks 65,767
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 26.97%
ARGENTINA - 0.41%
Central Costanera S.A.-Class B (Electric Companies) 20,700 53,830
- ------------------------------------------------------------------------------
Telefonica de Argentina S.A.-ADR (Telephone) 1,000 37,250
- ------------------------------------------------------------------------------
91,080
- ------------------------------------------------------------------------------
AUSTRALIA - 0.14%
Telstra Corp. Ltd. (Telephone)(a) 14,380 30,366
- ------------------------------------------------------------------------------
AUSTRIA - 0.47%
Oesterreichische Elektrizitaetswirtschafts A.G.-Class A
(Electric Companies) 970 102,901
- ------------------------------------------------------------------------------
BELGIUM - 0.42%
Electrabel S.A. (Electric Companies) 400 92,521
- ------------------------------------------------------------------------------
BRAZIL - 1.70%
Centrais Eletricas de Santa Catarina S.A. (Electric
Companies) 40,000 49,819
- ------------------------------------------------------------------------------
Compania Paranaense de Energia-Copel (Electric
Companies)(a) 3,100 42,431
- ------------------------------------------------------------------------------
Eletricidade de Sao Paulo S.A. (Electric Companies)(a) 270 50,804
- ------------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.-Telebras-ADR
(Telephone) 2,000 232,875
- ------------------------------------------------------------------------------
375,929
- ------------------------------------------------------------------------------
CANADA - 1.40%
MetroNet Communications Corp.-Class B (Communications
Equipment)(a) 1,800 31,275
- ------------------------------------------------------------------------------
Philip Services Corp. (Waste Management)(a) 3,500 50,313
- ------------------------------------------------------------------------------
TELUS Corp. (Telecommunications-Cellular/Wireless) 4,300 95,385
- ------------------------------------------------------------------------------
Westcoast Energy Inc. (Natural Gas) 5,500 126,500
- ------------------------------------------------------------------------------
Westshore Terminals Inc. (Services-Facilities &
Environmental) 2,200 5,542
- ------------------------------------------------------------------------------
309,015
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CHILE - 1.29%
Cia. de Telecomunicaciones de Chile S.A.-ADR (Telephone) 6,300 $ 188,213
- -------------------------------------------------------------------------------
Enersis S.A.-ADR (Electric Companies) 3,300 95,700
- -------------------------------------------------------------------------------
283,913
- -------------------------------------------------------------------------------
DENMARK - 0.22%
Tele Danmark A.S.-ADR (Telephone) 1,600 49,300
- -------------------------------------------------------------------------------
FINLAND - 0.32%
Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 1,000 70,000
- -------------------------------------------------------------------------------
GERMANY - 2.20%
RWE A.G. (Electric Companies) 2,200 118,010
- -------------------------------------------------------------------------------
VEBA A.G. (Manufacturing-Diversified) 3,435 233,901
- -------------------------------------------------------------------------------
Viag A.G. (Manufacturing-Diversified) 250 134,658
- -------------------------------------------------------------------------------
486,569
- -------------------------------------------------------------------------------
FRANCE - 0.33%
France Telecom S.A.-ADR (Telecommunications-
Cellular/Wireless)(a) 2,000 72,000
- -------------------------------------------------------------------------------
HONG KONG - 0.20%
China Telecom Ltd.-ADR (Telecommunications-
Cellular/Wireless)(a) 1,300 43,631
- -------------------------------------------------------------------------------
HUNGARY - 0.36%
Magyar Tavkozlesi ADR (Telecommunications-Long
Distance)(a) 3,100 80,600
- -------------------------------------------------------------------------------
INDONESIA - 0.11%
PT Indosat-ADR (Telephone) 1,300 25,106
- -------------------------------------------------------------------------------
ISRAEL - 0.50%
ECI Telecommunications Ltd. (Communications Equipment) 2,700 68,850
- -------------------------------------------------------------------------------
Gilat Communications Ltd. (Communications Equipment)(a) 5,800 42,775
- -------------------------------------------------------------------------------
111,625
- -------------------------------------------------------------------------------
ITALY - 2.40%
Telecom Italia Mobile S.p.A. (Telecommunications-
Cellular/Wireless) 38,025 175,444
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 55,277 353,598
- -------------------------------------------------------------------------------
529,042
- -------------------------------------------------------------------------------
JAPAN - 0.45%
Nippon Telegraph & Telephone Corp. (Telephone) 50 42,889
- -------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp.-ADR (Telephone) 1,300 56,306
- -------------------------------------------------------------------------------
99,195
- -------------------------------------------------------------------------------
NETHERLANDS - 0.43%
Royal PTT Nederland N.V. (Telephone) 280 11,682
- -------------------------------------------------------------------------------
Royal PTT Nederland N.V.-ADR (Telephone) 2,000 83,000
- -------------------------------------------------------------------------------
94,682
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-25
<PAGE> 97
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NEW ZEALAND - 1.08%
Sky Network Television Ltd. (Broadcasting-Television,
Radio & Cable)(a) 1,700 $ 25,500
- ----------------------------------------------------------------------------
Telecom Corp. of New Zealand Ltd.-ADR (Telephone) 5,500 213,125
- ----------------------------------------------------------------------------
238,625
- ----------------------------------------------------------------------------
PERU - 0.37%
Luz Del Sur S.A. (Power Producers-Independent)(a) 1,700 29,325
- ----------------------------------------------------------------------------
Telefonica del Peru S.A.-ADR (Telephone)(a) 2,200 51,288
- ----------------------------------------------------------------------------
80,613
- ----------------------------------------------------------------------------
PORTUGAL - 1.27%
Electricidade de Portugal, S.A.-ADR (Electric
Companies)(a) 1,000 38,750
- ----------------------------------------------------------------------------
Portugal Telecom S.A.-ADR (Telephone) 4,700 220,900
- ----------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications-Cellular/Wireless)(a) 200 21,400
- ----------------------------------------------------------------------------
281,050
- ----------------------------------------------------------------------------
SPAIN - 1.92%
Autopistas Concesionaria Espanola S.A. (Services-
Commercial & Consumer) 3,900 52,350
- ----------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 15,700 206,619
- ----------------------------------------------------------------------------
Telefonica de Espana-ADR (Telephone) 1,800 163,913
- ----------------------------------------------------------------------------
422,882
- ----------------------------------------------------------------------------
SWEDEN - 0.64%
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 3,800 141,788
- ----------------------------------------------------------------------------
UNITED KINGDOM - 7.70%
Energy Group PLC (Power Producers-Independent)(a) 2,000 89,250
- ----------------------------------------------------------------------------
Hyder PLC (Water Utilities) 4,210 66,930
- ----------------------------------------------------------------------------
National Grid Group PLC (Electric Companies) 12,134 57,593
- ----------------------------------------------------------------------------
National Power PLC (Electric Companies) 22,950 226,152
- ----------------------------------------------------------------------------
National Power PLC-ADR (Electric Companies) 900 35,662
- ----------------------------------------------------------------------------
PowerGen PLC (Electric Companies) 38,650 502,736
- ----------------------------------------------------------------------------
PowerGen PLC-ADR (Electric Companies) 1,100 58,438
- ----------------------------------------------------------------------------
Scottish Power PLC (Electric Companies) 15,950 140,932
- ----------------------------------------------------------------------------
Southern Electric PLC (Electric Companies) 9,706 80,660
- ----------------------------------------------------------------------------
United Utilities PLC (Water Utilities) 14,725 188,632
- ----------------------------------------------------------------------------
Wessex Water PLC (Water Utilities) 11,650 98,154
- ----------------------------------------------------------------------------
Yorkshire Water PLC (Water Utilities) 19,580 155,962
- ----------------------------------------------------------------------------
1,701,101
- ----------------------------------------------------------------------------
VENEZUELA - 0.64%
Cia. Anonima Nacional Telefonos de Venezuela
(Telecommunications-Long Distance)(a) 3,400 141,525
- ----------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests 5,955,059
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC NON-CONVERTIBLE BONDS & NOTES - 6.55%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.48%
Comcast Corp., Sr. Sub. Deb., 9.50%, 01/15/08 $ 100,000 $ 106,875
- ------------------------------------------------------------------------------
CONSUMER FINANCE - 0.38%
GMAC, Notes, 9.00%, 10/15/02 75,000 83,451
- ------------------------------------------------------------------------------
ELECTRIC COMPANIES - 0.84%
El Paso Electric Co., Series D Sec. 1st Mortgage Bonds,
8.90%, 02/01/06 75,000 83,036
- ------------------------------------------------------------------------------
Western Resources Inc., Sr. Notes, 7.125%, 08/01/09 100,000 102,984
- ------------------------------------------------------------------------------
186,020
- ------------------------------------------------------------------------------
ENTERTAINMENT - 1.26%
Time Warner, Inc.
Deb., 9.125%, 01/15/13 100,000 119,454
- ------------------------------------------------------------------------------
Notes, 8.18%, 08/15/07 75,000 82,367
- ------------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 75,000 76,039
- ------------------------------------------------------------------------------
277,860
- ------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.49%
California Energy Co., Notes, 10.25%, 01/15/04 100,000 108,000
- ------------------------------------------------------------------------------
NATURAL GAS - 0.58%
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 75,000 79,875
- ------------------------------------------------------------------------------
PanEnergy Corp., Notes, 7.875%, 08/15/04 45,000 48,915
- ------------------------------------------------------------------------------
128,790
- ------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.48%
Tennessee Gas Pipeline Co., Bonds, 7.00%, 03/15/27 100,000 105,440
- ------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.29%
AES Corp., Sr. Sub. Notes, 10.25%, 07/15/06 75,000 81,563
- ------------------------------------------------------------------------------
Arizona Public Service Co., Deb., 8.00%, 12/30/15 75,000 81,700
- ------------------------------------------------------------------------------
Indiana Michigan Power, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 93,421 122,242
- ------------------------------------------------------------------------------
285,505
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.75%
AT&T Corp., Sr. Notes, 7.75%, 03/01/07 150,000 164,414
- ------------------------------------------------------------------------------
Total Domestic Non-Convertible Bonds & Notes 1,446,355
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-26
<PAGE> 98
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN NON-CONVERTIBLE BONDS & NOTES - 2.25%
CANADA - 2.25%(c)
Bell Canada (Telecommunications-Cellular/Wireless),
Series EW Deb., 8.80%, 08/17/05 CAD 50,000 $ 41,062
- -------------------------------------------------------------------------------
Unsec. Deb., 10.875, 10/11/04 50,000 44,131
- -------------------------------------------------------------------------------
Canadian Oil Debco Inc. (Oil & Gas-Exploration &
Production), Deb., 11.00%, 10/31/00 100,000 78,437
- -------------------------------------------------------------------------------
Ontario Hydro (Electric Companies), Global Bonds,
9.00%, 06/24/02 100,000 79,414
- -------------------------------------------------------------------------------
Telegobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 100,000 77,657
- -------------------------------------------------------------------------------
Trans-Canada Pipelines (Oil & Gas-Exploration & Production),
Series Q Deb., 10.625%, 10/20/09 125,000 118,988
- -------------------------------------------------------------------------------
Unsec. Notes, 8.55%, 02/01/06 70,000 56,705
- -------------------------------------------------------------------------------
Total Foreign Non-Convertible Bonds & Notes 496,394
- -------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 1.41%
U.S. TREASURY BONDS - 0.71%
7.625%, 02/15/25 $ 130,000 157,822
- -------------------------------------------------------------------------------
U.S. TREASURY NOTES - 0.70%
6.625%, 06/30/01 150,000 154,260
- -------------------------------------------------------------------------------
Total U.S. Treasury Securities 312,082
- -------------------------------------------------------------------------------
Total Investments (excluding Repurchase Agreement) 18,594,968
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 17.27%(d)
Smith Barney, Inc., 6.75%, 01/02/98(e) 3,813,559 3,813,559
- -------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 101.49% 22,408,527
- -------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (1.49%) (329,666)
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $ 22,078,861
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
market value of this security at 12/31/97 represented 0.28% of the Fund's
net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
Canadian dollars.
(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% of the
sales price of the repurchase agreement. The investments in some
repurchase agreements are through participation in joint accounts with
other mutual funds, private accounts, and certain non-registered
investment companies managed by the investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 at $408,000,323.
Abbreviations:
ADR - American Depositary Receipt
CAD - Canadian dollars
Conv. - Convertible
Deb. - Debentures
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
PRIDES- Preferred Redeemable Increased Dividend Equity Securities
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec.- Unsecured
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-27
<PAGE> 99
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $13,970,866) $18,594,968
- ---------------------------------------------------------------------
Repurchase agreement (cost $3,813,559) 3,813,559
- ---------------------------------------------------------------------
Foreign currencies, at market value (cost $3,234) 3,246
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 67,399
- ---------------------------------------------------------------------
Investments sold 39,932
- ---------------------------------------------------------------------
Dividends and interest 91,910
- ---------------------------------------------------------------------
Investment for deferred compensation plan 13,684
- ---------------------------------------------------------------------
Total assets 22,624,698
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 503,055
- ---------------------------------------------------------------------
Deferred compensation plan 13,684
- ---------------------------------------------------------------------
Accrued advisory fees 11,266
- ---------------------------------------------------------------------
Accrued directors' fees 1,839
- ---------------------------------------------------------------------
Accrued administrative services fees 3,629
- ---------------------------------------------------------------------
Accrued operating expenses 12,364
- ---------------------------------------------------------------------
Total liabilities 545,837
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $22,078,861
=====================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 1,446,729
=====================================================================
Net asset value, offering and redemption price per share $15.26
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $18,882 foreign withholding tax) $ 376,432
- -----------------------------------------------------------------------------
Interest 290,021
- -----------------------------------------------------------------------------
Total investment income 666,453
- -----------------------------------------------------------------------------
EXPENSES:
Advisory fees 106,309
- -----------------------------------------------------------------------------
Administrative services fees 47,128
- -----------------------------------------------------------------------------
Custodian fees 17,887
- -----------------------------------------------------------------------------
Directors' fees and expenses 7,826
- -----------------------------------------------------------------------------
Professional fees 20,236
- -----------------------------------------------------------------------------
Other 8,597
- -----------------------------------------------------------------------------
Total expenses 207,983
- -----------------------------------------------------------------------------
Less:Expenses paid indirectly (179)
- -----------------------------------------------------------------------------
Net expenses 207,804
- -----------------------------------------------------------------------------
Net investment income 458,649
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCY TRANSACTIONS AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 181,733
- -----------------------------------------------------------------------------
Foreign currency transactions (16,050)
- -----------------------------------------------------------------------------
Futures contracts 10,462
- -----------------------------------------------------------------------------
176,145
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 2,780,466
- -----------------------------------------------------------------------------
Foreign currency transactions (759)
- -----------------------------------------------------------------------------
2,779,707
- -----------------------------------------------------------------------------
Net gain on investment securities, foreign currency transactions
and futures contracts 2,955,852
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,414,501
=============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
FS-28
<PAGE> 100
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 458,649 $ 400,253
- --------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currency transactions and futures contracts 176,145 67,729
- --------------------------------------------------------------------------------
Net unrealized appreciation of investment securities
and foreign currency transactions 2,779,707 880,598
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,414,501 1,348,580
- --------------------------------------------------------------------------------
Distributions to shareholders from net investment
income -- (410,247)
- --------------------------------------------------------------------------------
Distributions from net realized capital gains (6,795) (74,178)
- --------------------------------------------------------------------------------
Net increase from capital stock transactions 5,095,582 4,317,451
- --------------------------------------------------------------------------------
Net increase in net assets 8,503,288 5,181,606
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 13,575,573 8,393,967
- --------------------------------------------------------------------------------
End of year $22,078,861 $13,575,573
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $16,836,039 $11,740,457
- --------------------------------------------------------------------------------
Undistributed net investment income 439,576 (3,023)
- --------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currency transactions
and futures contracts 179,652 (5,748)
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities and
foreign currency transactions 4,623,594 1,843,887
- --------------------------------------------------------------------------------
$22,078,861 $13,575,573
================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to the AIM V.I. Global Utilities Fund (the "Fund"). The Fund's investment
objective is to achieve a high level of current income, and as a secondary
objective the Fund seeks to achieve capital appreciation, by investing
primarily in the common and preferred stocks of public utility companies
(either domestic or foreign). Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations either are not readily available or are questionable
are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by
the Board of Directors. Short-term obligations having 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
AIM V.I. GLOBAL UTILITIES FUND
FS-29
<PAGE> 101
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, 1997,
undistributed net investment income was decreased and undistributed net
realized gains increased by $16,050 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
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.
F. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $47,128 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,254 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $65 during the year ended December 31, 1997. The Fund also
received reductions in custodian fees of $114 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $179 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $7,558,487 and $3,982,219, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $4,712,475
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (88,373)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $4,624,102
=========================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold 505,614 $ 6,971,987 578,877 $ 6,900,184
- ------------------------------------------------------------------------
Issued as reinvestment of
distributions 459 6,795 39,804 484,425
- ------------------------------------------------------------------------
Reacquired (140,799) (1,883,200) (258,571) (3,067,158)
- ------------------------------------------------------------------------
365,274 $ 5,095,582 360,110 $ 4,317,451
========================================================================
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
FS-30
<PAGE> 102
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, the
eleven months ended December 31, 1995 and the period May 2, 1994 (date
operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- JANUARY 31,
1997 1996 1995 1995
------- ------- ------ -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 12.55 $11.64 $9.69 $10.00
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.32 0.40 0.29 0.27
- -----------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.40 0.99 1.98 (0.33)
- -----------------------------------------------------------------------------------
Total from investment
operations 2.72 1.39 2.27 (0.06)
- -----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income -- (0.41) (0.31) (0.25)
- -----------------------------------------------------------------------------------
Distributions from net
realized capital gains (0.01) (0.07) (0.01) --
- -----------------------------------------------------------------------------------
Total distributions (0.01) (0.48) (0.32) (0.25)
- -----------------------------------------------------------------------------------
Net asset value, end of
period $ 15.26 $12.55 $11.64 $ 9.69
===================================================================================
Total return(a) 21.63% 12.07% 23.73% (0.56)%
===================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $22,079 $13,576 $8,394 $2,958
===================================================================================
Ratio of expenses to
average net assets 1.28%(b)(c) 1.40%(d) 1.47%(d)(e) 1.31%(e)(f)
===================================================================================
Ratio of net investment
income to average net
assets 2.81%(b) 3.56%(d) 3.76%(d)(e) 4.39%(e)(f)
===================================================================================
Portfolio turnover rate 28% 47% 58% 69%
===================================================================================
Average brokerage
commission rate paid(g) $0.0365 $0.0477 N/A N/A
===================================================================================
</TABLE>
(a) Totals returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $16,297,147.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have remained
the same.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.55%, 3.42%, 2.44% (annualized) and 2.79% (annualized)
for 1996 and 1995, respectively.
(e) Annualized.
(f) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 2.80% and 2.90%, respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. GLOBAL UTILITIES FUND
FS-31
<PAGE> 103
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Government Securities Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, 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, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the two years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995, and the period May 5, 1993
(commencement of operations) through January 31, 1994, in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GOVERNMENT SECURITIES FUND
FS-32
<PAGE> 104
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 77.17%
FEDERAL FARM CREDIT BANK - 0.59%
Medium term notes
5.96%, 07/14/03 $ 200,000 $ 200,504
- ----------------------------------------------------------
FEDERAL HOME LOAN BANK BOARD - 7.06%
Debentures
8.375%, 10/25/99 150,000 156,620
- ----------------------------------------------------------
6.00%, 06/27/00 250,000 251,220
- ----------------------------------------------------------
5.97%, 12/11/00 1,000,000 1,004,790
- ----------------------------------------------------------
7.31%, 07/06/01 500,000 523,005
- ----------------------------------------------------------
8.17%, 12/16/04 400,000 449,296
- ----------------------------------------------------------
2,384,931
- ----------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC") - 14.03%
Debentures
6.13%, 08/19/99 150,000 150,825
- ----------------------------------------------------------
Pass through certificates
6.00%, 11/01/08 to 08/01/10 832,849 823,996
- ----------------------------------------------------------
6.50%, 12/01/08 to 07/01/23 1,454,590 1,456,294
- ----------------------------------------------------------
7.00%, 11/01/10 to 01/01/26 1,778,087 1,809,874
- ----------------------------------------------------------
10.50%, 08/01/19 258,784 284,338
- ----------------------------------------------------------
8.50%, 08/01/24 206,125 216,044
- ----------------------------------------------------------
4,741,371
- ----------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - 41.22%
Debentures
7.55%, 04/22/02 400,000 425,244
- ----------------------------------------------------------
8.50%, 02/01/05 500,000 523,305
- ----------------------------------------------------------
Medium term notes
7.375%, 03/28/05 300,000 324,159
- ----------------------------------------------------------
Pass through certificates
5.504%, 06/02/99 500,000 498,795
- ----------------------------------------------------------
6.24%, 02/01/06 490,964 493,498
- ----------------------------------------------------------
6.625%, 02/01/07 664,965 687,940
- ----------------------------------------------------------
7.50%, 11/01/09 to 07/01/27 3,774,432 3,873,116
- ----------------------------------------------------------
6.50%, 10/01/10 to 06/01/23 582,304 583,737
- ----------------------------------------------------------
7.00%, 07/01/11 to 12/01/27 5,671,038 5,742,794
- ----------------------------------------------------------
8.50%, 09/01/24 294,970 309,255
- ----------------------------------------------------------
STRIPS(a)
7.37%, 10/09/19 1,800,000 470,124
- ----------------------------------------------------------
13,931,967
- ----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 9.45%
Pass through certificates
9.50%, 08/15/03 to 09/15/16 $ 90,877 $ 98,796
- ----------------------------------------------------------------
9.00%, 09/15/08 to 10/15/16 175,375 190,075
- ----------------------------------------------------------------
11.00%, 10/15/15 45,876 51,424
- ----------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 43,969 48,641
- ----------------------------------------------------------------
6.50%, 12/15/23 463,594 462,579
- ----------------------------------------------------------------
8.00%, 07/15/26 1,263,321 1,312,666
- ----------------------------------------------------------------
7.50%, 05/15/27 1,004,475 1,030,521
- ----------------------------------------------------------------
3,194,702
- ----------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY - 0.93%
Debentures
7.30%, 01/31/02 300,000 315,321
- ----------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION - 2.38%
Debentures
5.629%, 02/22/99 500,000 499,670
- ----------------------------------------------------------------
5.55%, 12/15/99 150,000 149,393
- ----------------------------------------------------------------
6.50%, 08/01/02 150,000 153,732
- ----------------------------------------------------------------
802,795
- ----------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY - 1.51%
Debentures
6.375%, 06/15/05 500,000 511,605
- ----------------------------------------------------------------
Total U.S. Government Agency Securities 26,083,196
- ----------------------------------------------------------------
U.S. TREASURY SECURITIES - 17.23%
U.S. TREASURY NOTES & BONDS - 16.17%
5.625%, 11/30/99 1,000,000 999,560
- ----------------------------------------------------------------
6.125%, 12/31/01 1,500,000 1,521,030
- ----------------------------------------------------------------
6.00%, 07/31/02 300,000 303,360
- ----------------------------------------------------------------
6.625%, 05/15/07 500,000 529,475
- ----------------------------------------------------------------
6.125%, 08/15/07 500,000 514,010
- ----------------------------------------------------------------
6.875%, 08/15/25 500,000 557,695
- ----------------------------------------------------------------
6.375%, 08/15/27 500,000 527,670
- ----------------------------------------------------------------
6.125%, 11/15/27 500,000 513,895
- ----------------------------------------------------------------
5,466,695
- ----------------------------------------------------------------
U.S. TREASURY STRIPS(a) - 1.06%
6.80%, 11/15/18 1,250,000 356,675
- ----------------------------------------------------------------
Total U.S. Treasury Securities 5,823,370
- ----------------------------------------------------------------
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
FS-33
<PAGE> 105
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT - 4.42%(b)
Goldman, Sachs & Co., 6.53%, 01/02/98(c) $1,493,291 $ 1,493,291
- ----------------------------------------------------------------
TOTAL INVESTMENTS - 98.82% 33,399,857
- ----------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.18% 399,939
- ----------------------------------------------------------------
NET ASSETS - 100.00% $33,799,796
================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) STRIPS are traded on a discount basis. In such cases the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(b) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$900,326,500. Collateralized by $856,643,000 U.S. Government obligations,
0% to 14%, due 01/08/98 to 08/15/23 with an aggregate market value at
12/31/97 of $918,902,583.
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-34
<PAGE> 106
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $32,662,725) $ 33,399,857
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 173,205
- ----------------------------------------------------------------------
Interest 258,350
- ----------------------------------------------------------------------
Investment for deferred compensation plan 16,668
- ----------------------------------------------------------------------
Organizational costs, net 967
- ----------------------------------------------------------------------
Other assets 2,813
- ----------------------------------------------------------------------
Total assets 33,851,860
- ----------------------------------------------------------------------
LIABILITIES:
Deferred compensation payable 16,668
- ----------------------------------------------------------------------
Accrued advisory fees 14,074
- ----------------------------------------------------------------------
Accrued directors' fees 2,519
- ----------------------------------------------------------------------
Accrued administrative service fees 2,920
- ----------------------------------------------------------------------
Accrued operating expenses 15,883
- ----------------------------------------------------------------------
Total liabilities 52,064
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 33,799,796
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 3,167,800
======================================================================
Net asset value, offering and redemption price per share $10.67
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $1,862,279
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 138,550
- --------------------------------------------------------------------------
Administrative services fees 37,872
- --------------------------------------------------------------------------
Custodian fees 13,275
- --------------------------------------------------------------------------
Directors' fees and expenses 8,571
- --------------------------------------------------------------------------
Professional fees 23,862
- --------------------------------------------------------------------------
Organizational costs 2,903
- --------------------------------------------------------------------------
Other 16,788
- --------------------------------------------------------------------------
Total expenses 241,821
- --------------------------------------------------------------------------
Net investment income 1,620,458
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES:
Net realized gain (loss) on sales of investment securities (100,162)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities 728,502
- --------------------------------------------------------------------------
Net gain on investment securities 628,340
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,248,798
==========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-35
<PAGE> 107
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,620,458 $ 1,246,854
- ----------------------------------------------------------------------------
Net realized gain (loss) on sales of investment
securities (100,162) (33,180)
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities 728,502 (626,394)
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 2,248,798 587,280
- ----------------------------------------------------------------------------
Distributions to shareholders from net investment
income (15,600) (1,251,057)
- ----------------------------------------------------------------------------
Net equalization credits -- 247,547
- ----------------------------------------------------------------------------
Net increase from capital stock transactions 7,040,082 5,397,355
- ----------------------------------------------------------------------------
Net increase in net assets 9,273,280 4,981,125
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 24,526,516 19,545,391
- ----------------------------------------------------------------------------
End of year $33,799,796 $24,526,516
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $31,984,676 $24,348,661
- ----------------------------------------------------------------------------
Undistributed net investment income 1,585,397 653,121
- ----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (507,409) (483,896)
- ----------------------------------------------------------------------------
Unrealized appreciation of investment securities 737,132 8,630
- ----------------------------------------------------------------------------
$33,799,796 $24,526,516
============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. 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 and variable life insurance
policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - Debt obligations that are issued or guaranteed by the
U.S. Government, its agencies, authorities, and instrumentalities are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate, maturity and seasoning differential.
Securities for which market prices are not provided by the pricing service
are valued at the mean between last bid and asked prices based upon quotes
furnished by independent sources. Securities for which market quotations
are either not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of
Directors. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Distributions to shareholders are recorded on the ex-dividend date.
Realized gains or losses from securities transactions are recorded on the
identified cost basis. On December 31, 1997, undistributed net realized
gain (loss) was increased and undistributed
AIM V.I. GOVERNMENT SECURITIES FUND
FS-36
<PAGE> 108
net investment income decreased by $76,649 as a result of permanent book/tax
differences due to the differing book/tax treatment for principal paydown
losses on mortgage back securities. Net assets of the Fund were unaffected by
the reclassifications discussed above.
C. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
The Fund had capital loss carryforwards (which may be carried forward to
offset future taxable capital gains, if any) of $507,409, which expires, if
not previously utilized, through the year 2004. The Fund cannot distribute
capital gains to shareholders until the tax loss carryforwards have been
utilized.
D. Equalization - The Fund previously followed the accounting practice known
as equalization by which a portion of the proceeds from sales and 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 the
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares. During the year ended December 31, 1997, the
Fund discontinued equalization accounting and reclassified the cumulative
equalization debits of $595,933 from undistributed net investment income to
paid-in capital. This change has no effect on the net assets, the results
of operations or net asset value per share of the Fund.
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.
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 year ended December 31, 1997, AIM was reimbursed $37,872 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,280 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest a director's
fees, if so elected by such director, in mutual fund shares in accordance with
a deferred compensation plan.
NOTE 4 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $24,965,236 and $16,850,495, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $757,075
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (19,943)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $737,132
=======================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Sold 1,272,288 $13,023,561 872,793 $8,373,957
- ------------------------------------------------------------------------
Issued as reinvestment of
distributions 1,468 15,600 126,754 1,220,637
- ------------------------------------------------------------------------
Reacquired (591,274) (5,999,079) (435,586) (4,197,239)
- ------------------------------------------------------------------------
682,482 $ 7,040,082 563,961 $5,397,355
========================================================================
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
FS-37
<PAGE> 109
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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>
DECEMBER 31, JANUARY 31,
---------------------------- -------------------
1997 1996 1995 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.87 $ 10.17 $ 9.39 $ 10.24 $ 10.00
- --------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.59 0.58 0.54 0.53 0.38
- --------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.22 (0.35) 0.74 (0.88) 0.10
- --------------------------------------------------------------------------------------
Total from investment
operations 0.81 0.23 1.28 (0.35) 0.48
- --------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.01) (0.53) (0.50) (0.50) (0.24)
- --------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
======================================================================================
Total return(a) 8.16% 2.29% 13.84% (3.42)% 4.78%
======================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $33,800 $24,527 $19,545 $12,887 $10,643
======================================================================================
Ratio of expenses to
average net assets 0.87%(b) 0.91% 1.19%(c) 0.95%(d) 1.00%(c)(d)
======================================================================================
Ratio of net investment
income to average net
assets 5.85%(b) 5.80% 5.78%(c) 5.51%(e) 4.74%(c)(e)
======================================================================================
Portfolio turnover rate 66% 32% 41% 29% 0%
======================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $27,710,072.
(c) Annualized.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.10% and 1.80% (annualized) for January, 1995 and 1994, respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.35% and 3.94% (annualized) for January, 1995 and
1994, respectively.
AIM V.I. GOVERNMENT SECURITIES FUND
FS-38
<PAGE> 110
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the two years in the period then ended,
the eleven month period ended December 31, 1995, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth Fund, as of December 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the two years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994 in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GROWTH FUND
FS-39
<PAGE> 111
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 78.99%
AEROSPACE/DEFENSE - 0.64%
Coltec Industries, Inc.(a) 6,500 $ 150,718
- ---------------------------------------------------------------
Sundstrand Corp. 30,000 1,511,250
- ---------------------------------------------------------------
1,661,968
- ---------------------------------------------------------------
AGRICULTURAL PRODUCTS - 0.64%
DIMON, Inc. 23,600 619,500
- ---------------------------------------------------------------
Universal Corp. 25,000 1,028,124
- ---------------------------------------------------------------
1,647,624
- ---------------------------------------------------------------
AIR FREIGHT - 0.23%
CNF Transportation Inc. 15,500 594,812
- ---------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.31%
Federal-Mogul Corp. 16,200 656,100
- ---------------------------------------------------------------
MascoTech, Inc. 8,400 154,350
- ---------------------------------------------------------------
810,450
- ---------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.55%
First Union Corp. 28,000 1,435,000
- ---------------------------------------------------------------
BANKS (MONEY CENTER) - 2.43%
BankAmerica Corp. 18,000 1,314,000
- ---------------------------------------------------------------
Chase Manhattan Corp. 35,000 3,832,500
- ---------------------------------------------------------------
Citicorp 9,000 1,137,936
- ---------------------------------------------------------------
6,284,436
- ---------------------------------------------------------------
BANKS (REGIONAL) - 0.26%
North Fork Bancorporation, Inc. 20,000 671,250
- ---------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.66%
Chancellor Media Corp.(a) 11,100 828,338
- ---------------------------------------------------------------
Jacor Communications, Inc.(a) 16,500 876,562
- ---------------------------------------------------------------
1,704,900
- ---------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.56%
Crompton & Knowles Corp. 28,000 742,000
- ---------------------------------------------------------------
Millennium Chemicals Inc. 30,000 706,875
- ---------------------------------------------------------------
1,448,875
- ---------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.52%
Lucent Technologies, Inc.(b)(c) 22,000 1,757,250
- ---------------------------------------------------------------
QUALCOMM, Inc.(a) 16,000 808,000
- ---------------------------------------------------------------
Tellabs, Inc.(a) 26,000 1,374,750
- ---------------------------------------------------------------
3,940,000
- ---------------------------------------------------------------
COMPUTERS (HARDWARE) - 2.96%
Compaq Computer Corp. 37,500 2,116,405
- ---------------------------------------------------------------
Dell Computer Corp.(a) 20,000 1,680,000
- ---------------------------------------------------------------
International Business Machines Corp. 37,000 3,868,812
- ---------------------------------------------------------------
7,665,217
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (NETWORKING) - 0.26%
Cisco Systems, Inc.(a) 12,000 $ 669,000
- -----------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.53%
EMC Corp.(a) 50,000 1,371,873
- -----------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 4.45%
America Online, Inc.(a)(b)(c) 15,500 1,382,404
- -----------------------------------------------------------------
BMC Software, Inc.(a) 20,000 1,312,500
- -----------------------------------------------------------------
Cadence Design Systems, Inc.(a) 31,000 759,500
- -----------------------------------------------------------------
Computer Associates International, Inc. 34,500 1,824,186
- -----------------------------------------------------------------
Compuware Corp.(a) 40,000 1,280,000
- -----------------------------------------------------------------
Microsoft Corp.(a) 32,000 4,136,000
- -----------------------------------------------------------------
Unisys Corp.(a) 60,000 832,500
- -----------------------------------------------------------------
11,527,090
- -----------------------------------------------------------------
CONSUMER FINANCE - 2.55%
ContiFinancial Corp.(a) 12,800 322,400
- -----------------------------------------------------------------
FIRSTPLUS Financial Group, Inc.(a) 42,000 1,611,750
- -----------------------------------------------------------------
Household International, Inc. 10,000 1,275,625
- -----------------------------------------------------------------
Money Store, Inc. (The) 29,000 609,000
- -----------------------------------------------------------------
SLM Holding Corp. 20,000 2,782,500
- -----------------------------------------------------------------
6,601,275
- -----------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 1.15%
AmeriSource Health Corp.-Class A(a) 24,000 1,398,000
- -----------------------------------------------------------------
Cardinal Health, Inc. 9,000 676,125
- -----------------------------------------------------------------
Sysco Corp. 20,000 911,250
- -----------------------------------------------------------------
2,985,375
- -----------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.31%
American Power Conversion Corp.(a) 20,000 472,500
- -----------------------------------------------------------------
General Electric Co. 46,700 3,426,612
- -----------------------------------------------------------------
SCI Systems, Inc.(a) 7,800 339,788
- -----------------------------------------------------------------
Solectron Corp.(a) 22,600 939,312
- -----------------------------------------------------------------
Symbol Technologies, Inc. 21,200 800,300
- -----------------------------------------------------------------
5,978,512
- -----------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.59%
Perkin-Elmer Corp. 5,500 390,844
- -----------------------------------------------------------------
Waters Corp.(a) 30,500 1,147,562
- -----------------------------------------------------------------
1,538,406
- -----------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.34%
Intel Corp. 12,600 885,150
- -----------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.21%
Applied Materials, Inc.(a)(b)(c) 18,000 542,250
- -----------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-40
<PAGE> 112
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED) - 3.22%
American Express Co. 17,000 $ 1,517,250
- ---------------------------------------------------------------------
Amresco, Inc.(a) 33,000 998,250
- ---------------------------------------------------------------------
Fannie Mae 30,000 1,711,875
- ---------------------------------------------------------------------
Freddie Mac 36,000 1,509,750
- ---------------------------------------------------------------------
MBIA, Inc. 12,600 841,836
- ---------------------------------------------------------------------
MGIC Investment Corp. 13,000 864,500
- ---------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 15,000 886,875
- ---------------------------------------------------------------------
8,330,336
- ---------------------------------------------------------------------
FOODS - 0.33%
ConAgra, Inc.(b) 22,000 721,874
- ---------------------------------------------------------------------
Sara Lee Corp. 2,300 129,518
- ---------------------------------------------------------------------
851,392
- ---------------------------------------------------------------------
FOOTWEAR - 0.26%
Wolverine World Wide, Inc. 30,000 678,750
- ---------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 2.97%
Abbott Laboratories 14,000 917,874
- ---------------------------------------------------------------------
American Home Products Corp. 11,800 902,700
- ---------------------------------------------------------------------
Bristol-Myers Squibb Co.(b) 24,100 2,280,462
- ---------------------------------------------------------------------
Johnson & Johnson 20,000 1,317,500
- ---------------------------------------------------------------------
Warner-Lambert Co. 18,400 2,281,600
- ---------------------------------------------------------------------
7,700,136
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.64%
Dura Pharmaceuticals, Inc.(a) 12,700 582,612
- ---------------------------------------------------------------------
ICN Pharmaceuticals, Inc. 38,300 1,869,519
- ---------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 55,000 1,784,062
- ---------------------------------------------------------------------
4,236,193
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 3.11%
Lilly (Eli) & Co. 15,000 1,044,375
- ---------------------------------------------------------------------
Merck & Co., Inc. 41,000 4,356,250
- ---------------------------------------------------------------------
Pfizer Inc. 14,300 1,066,244
- ---------------------------------------------------------------------
Schering-Plough Corp. 25,500 1,584,188
- ---------------------------------------------------------------------
8,051,057
- ---------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.58%
Quorum Health Group, Inc.(a) 37,000 966,625
- ---------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 10,700 539,012
- ---------------------------------------------------------------------
1,505,637
- ---------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.64%
Health Care and Retirement Corp.(a) 6,700 269,675
- ---------------------------------------------------------------------
HEALTHSOUTH Corp.(a) 50,000 1,387,500
- ---------------------------------------------------------------------
1,657,175
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.79%
Arterial Vascular Engineering, Inc.(a) 26,200 $ 1,703,000
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 40,000 2,000,000
- ------------------------------------------------------------------------
DePuy, Inc. 7,800 224,250
- ------------------------------------------------------------------------
Guidant Corp. 15,000 933,750
- ------------------------------------------------------------------------
Stryker Corp. 29,800 1,110,050
- ------------------------------------------------------------------------
Sybron International Corp.(a) 26,400 1,239,150
- ------------------------------------------------------------------------
7,210,200
- ------------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.44%
Furniture Brands International, Inc.(a) 21,000 430,500
- ------------------------------------------------------------------------
Maytag Corp. 19,200 716,400
- ------------------------------------------------------------------------
1,146,900
- ------------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.72%
Dial Corp. (The) 40,000 832,500
- ------------------------------------------------------------------------
Procter & Gamble Co. 13,000 1,037,563
- ------------------------------------------------------------------------
1,870,063
- ------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.55%
Conseco, Inc. 30,000 1,363,125
- ------------------------------------------------------------------------
Equitable Companies, Inc. 20,000 995,000
- ------------------------------------------------------------------------
Nationwide Financial Services, Inc.-Class A(a) 25,000 903,125
- ------------------------------------------------------------------------
Torchmark Corp. 18,000 757,125
- ------------------------------------------------------------------------
4,018,375
- ------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 2.20%
Ace, Ltd. 14,400 1,389,600
- ------------------------------------------------------------------------
Allmerica Financial Corp. 16,000 799,000
- ------------------------------------------------------------------------
American International Group, Inc. 8,600 935,250
- ------------------------------------------------------------------------
Travelers Group, Inc. 47,602 2,564,558
- ------------------------------------------------------------------------
5,688,408
- ------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 1.93%
Allstate Corp. 19,900 1,808,412
- ------------------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 35,000 1,443,750
- ------------------------------------------------------------------------
EXEL Ltd. 13,200 836,550
- ------------------------------------------------------------------------
Fremont General Corp. 16,500 903,375
- ------------------------------------------------------------------------
4,992,087
- ------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.18%
Merrill Lynch & Co., Inc. 42,000 3,063,375
- ------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.85%
Franklin Resources, Inc. 12,350 1,073,678
- ------------------------------------------------------------------------
T. Rowe Price Associates, Inc. 18,000 1,131,750
- ------------------------------------------------------------------------
2,205,428
- ------------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.36%
Harley-Davidson, Inc. 33,500 917,062
- ------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-41
<PAGE> 113
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LODGING (HOTELS) - 1.40%
Carnival Corp.-Class A 31,000 $ 1,716,625
- ------------------------------------------------------------------
Host Marriott Corp.(a) 7,400 145,225
- ------------------------------------------------------------------
ITT Corp. 14,000 1,160,250
- ------------------------------------------------------------------
Promus Hotel Corp.(a) 14,460 607,320
- ------------------------------------------------------------------
3,629,420
- ------------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.82%
Dover Corp.(a) 37,800 1,365,525
- ------------------------------------------------------------------
Ingersoll-Rand Co. 18,450 747,225
- ------------------------------------------------------------------
2,112,750
- ------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.47%
Carlisle Companies, Inc. 4,000 171,000
- ------------------------------------------------------------------
Crane Co. 6,600 286,275
- ------------------------------------------------------------------
Eaton Corp. 7,500 669,375
- ------------------------------------------------------------------
Thermo Electron Corp.(a) 45,000 2,002,500
- ------------------------------------------------------------------
U.S. Industries, Inc. 22,500 677,812
- ------------------------------------------------------------------
3,806,962
- ------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.31%
Diebold, Inc. 15,650 792,280
- ------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 4.31%
BJ Services Co.(a) 18,500 1,330,844
- ------------------------------------------------------------------
Cooper Cameron Corp.(a) 22,000 1,342,000
- ------------------------------------------------------------------
Diamond Offshore Drilling, Inc. 30,000 1,443,750
- ------------------------------------------------------------------
ENSCO International, Inc.(a) 19,000 636,500
- ------------------------------------------------------------------
Halliburton Co. 12,000 623,250
- ------------------------------------------------------------------
Nabors Industries, Inc.(a) 40,000 1,257,500
- ------------------------------------------------------------------
Newpark Resources, Inc.(a) 15,600 273,000
- ------------------------------------------------------------------
Santa Fe International Corp. 30,500 1,240,968
- ------------------------------------------------------------------
Schlumberger Ltd. 17,200 1,384,600
- ------------------------------------------------------------------
Transocean Offshore Inc. 2,300 110,830
- ------------------------------------------------------------------
Western Atlas Inc.(a) 20,500 1,517,000
- ------------------------------------------------------------------
11,160,242
- ------------------------------------------------------------------
PERSONAL CARE - 1.16%
Avon Products, Inc. 25,000 1,534,375
- ------------------------------------------------------------------
Gillette Co. 14,500 1,456,344
- ------------------------------------------------------------------
2,990,719
- ------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.63%
AES Corp.(a) 35,000 1,631,875
- ------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 0.63%
Gannett Co., Inc. 14,000 865,375
- ------------------------------------------------------------------
New York Times Co.-Class A 11,700 773,663
- ------------------------------------------------------------------
1,639,038
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST - 1.16%
Crescent Real Estate Equities, Co. 20,000 $ 787,500
- ------------------------------------------------------------------
Patriot American Hospitality, Inc. 32,000 922,000
- ------------------------------------------------------------------
Starwood Lodging Trust 22,000 1,273,250
- ------------------------------------------------------------------
2,982,750
- ------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.32%
Home Depot, Inc.(b)(c) 13,950 821,306
- ------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 1.56%
CompUSA, Inc.(a) 38,100 1,181,100
- ------------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 45,000 1,310,625
- ------------------------------------------------------------------
Tech Data Corp.(a) 39,900 1,551,112
- ------------------------------------------------------------------
4,042,837
- ------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.81%
Federated Department Stores, Inc. 15,000 645,938
- ------------------------------------------------------------------
Nordstrom, Inc. 1,900 114,712
- ------------------------------------------------------------------
Proffitt's, Inc.(a) 47,000 1,336,562
- ------------------------------------------------------------------
2,097,212
- ------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.94%
Consolidated Stores Corp.(a) 23,750 1,043,516
- ------------------------------------------------------------------
Family Dollar Stores, Inc. 19,200 562,800
- ------------------------------------------------------------------
Ross Stores, Inc. 23,000 836,625
- ------------------------------------------------------------------
2,442,941
- ------------------------------------------------------------------
RETAIL (DRUG STORES) - 1.01%
CVS Corp. 18,000 1,153,125
- ------------------------------------------------------------------
Rite Aid Corp. 25,000 1,467,188
- ------------------------------------------------------------------
2,620,313
- ------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.70%
Albertson's, Inc. 24,200 1,146,475
- ------------------------------------------------------------------
Kroger Co.(a) 47,000 1,736,063
- ------------------------------------------------------------------
Safeway, Inc.(a)(b) 24,000 1,518,000
- ------------------------------------------------------------------
4,400,538
- ------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 2.22%
Costco Companies, Inc.(a) 38,000 1,695,750
- ------------------------------------------------------------------
Dayton Hudson Corp. 24,500 1,653,750
- ------------------------------------------------------------------
Fred Meyer, Inc.(a) 40,000 1,455,000
- ------------------------------------------------------------------
Wal-Mart Stores, Inc. 24,100 950,444
- ------------------------------------------------------------------
5,754,944
- ------------------------------------------------------------------
RETAIL (SPECIALTY) - 1.04%
Bed Bath & Beyond, Inc.(a)(b)(c) 18,000 693,000
- ------------------------------------------------------------------
Office Depot, Inc.(a) 57,300 1,371,618
- ------------------------------------------------------------------
Payless ShoeSource, Inc.(a) 9,500 637,688
- ------------------------------------------------------------------
2,702,306
- ------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-42
<PAGE> 114
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY-APPAREL) - 0.41%
Intimate Brands, Inc. 9,900 $ 238,218
- --------------------------------------------------------------------------
TJX Companies, Inc. 24,000 825,000
- --------------------------------------------------------------------------
1,063,218
- --------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 1.43%
Ahmanson (H.F.) & Co. 28,700 1,921,105
- --------------------------------------------------------------------------
Charter One Financial, Inc. 10,840 684,275
- --------------------------------------------------------------------------
Washington Mutual, Inc. 17,000 1,084,812
- --------------------------------------------------------------------------
3,690,192
- --------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.52%
Outdoor Systems, Inc.(a) 19,800 759,825
- --------------------------------------------------------------------------
Universal Outdoor Holdings, Inc. 11,400 592,800
- --------------------------------------------------------------------------
1,352,625
- --------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.14%
Cendant Corp.(b)(c) 84,108 2,891,228
- --------------------------------------------------------------------------
Service Corp. International 71,700 2,648,454
- --------------------------------------------------------------------------
5,539,682
- --------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.50%
Equifax, Inc. 65,600 2,324,700
- --------------------------------------------------------------------------
Fiserv, Inc.(a) 11,400 560,024
- --------------------------------------------------------------------------
National Data Corp. 27,264 984,910
- --------------------------------------------------------------------------
3,869,634
- --------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.25%
AccuStaff, Inc.(a) 28,100 646,300
- --------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.56%
AT&T Corp. 25,000 1,531,250
- --------------------------------------------------------------------------
CIENA Corp.(a) 15,000 916,875
- --------------------------------------------------------------------------
MCI Communications Corp. 20,000 856,250
- --------------------------------------------------------------------------
WorldCom, Inc.(a) 24,000 726,000
- --------------------------------------------------------------------------
4,030,375
- --------------------------------------------------------------------------
TELEPHONE - 0.60%
Bell Atlantic Corp. 17,000 1,547,000
- --------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.29%
Warnaco Group, Inc. (The) 23,800 746,725
- --------------------------------------------------------------------------
TOBACCO - 0.56%
Philip Morris Companies, Inc. 32,000 1,450,000
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 0.32%
USA Waste Services, Inc.(a) 20,900 820,324
- --------------------------------------------------------------------------
Total Domestic Common Stocks 204,470,545
- --------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.15%
FINANCIAL (DIVERSIFIED) - 0.89%
MGIC Investment Corp.-$3.12 Conv. Pfd. 15,000 1,665,000
- --------------------------------------------------------------------------
SunAmerica, Inc.-Series E, $3.10 Dep. Conv. Pfd. 4,900 637,000
- --------------------------------------------------------------------------
2,302,000
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
LODGING (HOTELS) - 0.26%
Host Marriott Corp., $3.375 Conv. Pfd. 10,950 $ 672,746
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 2,974,746
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
DOMESTIC CONVERTIBLE CORPORATE NOTES - 0.67%
ELECTRICAL EQUIPMENT - 0.67%
SCI Systems, Inc., Conv. Sub. Notes, 5.00%,
05/01/06(d) (acquired 10/31/96-12/06/96; cost
$1,166,399) $ 923,000 1,728,945
- ------------------------------------------------------------------------------
Total Domestic Convertible Corporate Notes 1,728,945
- ------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 6.27%
BERMUDA - 0.52%
Tyco International Ltd. (Manufacturing-Diversified) 30,000 1,351,875
- ------------------------------------------------------------------------------
CANADA - 0.77%
Northern Telecom Ltd.-ADR (Communications
Equipment)(b)(c) 9,300 827,700
- ------------------------------------------------------------------------------
Philip Services Corp. (Waste Management)(a) 80,000 1,150,000
- ------------------------------------------------------------------------------
1,977,700
- ------------------------------------------------------------------------------
FRANCE - 1.77%
Banque Nationale de Paris (Banks-Major Regional) 26,000 1,381,972
- ------------------------------------------------------------------------------
ELF Aquitaine S.A. (Oil & Gas-Drilling & Equipment) 11,000 1,279,388
- ------------------------------------------------------------------------------
Renault S.A. (Automobiles)(b) 22,500 632,922
- ------------------------------------------------------------------------------
Societe Generale (Banks-Major Regional) 9,500 1,294,342
- ------------------------------------------------------------------------------
4,588,624
- ------------------------------------------------------------------------------
GERMANY - 0.15%
Adidas A.G. (Footwear) 2,950 387,976
- ------------------------------------------------------------------------------
IRELAND - 0.24%
Elan Corp. PLC-ADR (Health Care-Drugs-Generic &
Other)(a) 12,100 619,368
- ------------------------------------------------------------------------------
NETHERLANDS - 0.36%
Akzo Nobel N.V. (Chemicals-Diversified) 5,450 939,668
- ------------------------------------------------------------------------------
SINGAPORE - 0.11%
Asia Pulp & Paper Co. Ltd.-ADR (Paper & Forest
Products) 28,100 282,756
- ------------------------------------------------------------------------------
SWEDEN - 0.46%
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 32,000 1,194,000
- ------------------------------------------------------------------------------
SWITZERLAND - 1.33%
Novartis A.G. (Healthcare-Diversified) 570 924,324
- ------------------------------------------------------------------------------
UBS-Union Bank of Switzerland (Banks-Major Regional) 1,750 2,528,908
- ------------------------------------------------------------------------------
3,453,232
- ------------------------------------------------------------------------------
UNITED KINGDOM - 0.56%
SmithKline Beecham PLC-ADR (Health Care-Drugs-Major
Pharmaceuticals) 28,200 1,450,536
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests 16,245,735
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
FS-43
<PAGE> 115
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.33%
SWITZERLAND - 0.33%
Sandoz Capital BVI Ltd. (Financial-Diversified), Sr.
Conv. Deb., 2.00%, 10/06/02 (acquired 11/04/96-
11/08/96; cost $612,162)(d) $ 550,000 $ 848,375
- -------------------------------------------------------------------------------
Total Foreign Convertible Bonds 848,375
- -------------------------------------------------------------------------------
Total Investments, excluding repurchase agreements 226,268,346
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 12.82%(e)
Smith Barney, Inc., 6.75%, 01/02/98(f) 33,186,429 33,186,429
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.23% 259,454,775
- -------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.23)% (603,005)
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $258,851,770
===============================================================================
</TABLE>
Investment Abbreviations:
ADR-American Depositary Receipt
Conv.-Convertible
Deb.-Debentures
Pfd.-Preferred
Sr.-Senior
Sub.-Subordinated
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) A portion of this security is subject to put options purchased. See Note 8.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/97 was $2,577,320 which
represented 1.00% of the Fund's net assets.
(e) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(f) Joint repurchase agreements entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
December 31, 1997 of $408,000,323.
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-44
<PAGE> 116
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market
value (cost $173,804,805) $226,268,346
- ----------------------------------------------------------------------
Repurchase agreements (cost $33,186,249) 33,186,429
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 104,657
- ----------------------------------------------------------------------
Investments sold 1,355,180
- ----------------------------------------------------------------------
Dividends and interest 171,225
- ----------------------------------------------------------------------
Options written 137,059
- ----------------------------------------------------------------------
Organizational costs, net 965
- ----------------------------------------------------------------------
Investment for deferred compensation plan 17,734
- ----------------------------------------------------------------------
Other assets 1,495
- ----------------------------------------------------------------------
Total assets 261,243,090
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,327,198
- ----------------------------------------------------------------------
Capital stock reacquired 139,112
- ----------------------------------------------------------------------
Options written 731,831
- ----------------------------------------------------------------------
Deferred compensation plan 17,734
- ----------------------------------------------------------------------
Accrued advisory fees 134,357
- ----------------------------------------------------------------------
Accrued directors' fees 2,202
- ----------------------------------------------------------------------
Accrued administrative service fees 3,053
- ----------------------------------------------------------------------
Accrued operating expenses 35,833
- ----------------------------------------------------------------------
Total liabilities 2,391,320
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $258,851,770
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 13,054,326
======================================================================
Net asset value, offering and redemption price per share $19.83
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $18,515 foreign withholding tax) $ 1,864,707
- ----------------------------------------------------------------------------
Interest 990,927
- ----------------------------------------------------------------------------
Total investment income 2,855,634
- ----------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,453,488
- ----------------------------------------------------------------------------
Administrative service fees 44,692
- ----------------------------------------------------------------------------
Custodian fees 68,311
- ----------------------------------------------------------------------------
Directors' fees and expenses 8,967
- ----------------------------------------------------------------------------
Organizational costs 2,892
- ----------------------------------------------------------------------------
Other 67,219
- ----------------------------------------------------------------------------
Total expenses 1,645,569
- ----------------------------------------------------------------------------
Less: Expenses paid indirectly (1,708)
- ----------------------------------------------------------------------------
Net expenses 1,643,861
- ----------------------------------------------------------------------------
Net investment income 1,211,773
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTIONS CONTRACTS:
Net realized gain (loss) from:
Investment securities 19,739,112
- ----------------------------------------------------------------------------
Foreign currencies (41,236)
- ----------------------------------------------------------------------------
Futures contracts 2,272,116
- ----------------------------------------------------------------------------
Options contracts 139,988
- ----------------------------------------------------------------------------
22,109,980
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 28,602,661
- ----------------------------------------------------------------------------
Foreign currencies 351
- ----------------------------------------------------------------------------
Futures contracts (83,436)
- ----------------------------------------------------------------------------
Options contracts (449,591)
- ----------------------------------------------------------------------------
28,069,985
- ----------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, futures
and options contracts 50,179,965
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $51,391,738
============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
FS-45
<PAGE> 117
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,211,773 $ 1,113,772
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and options
contracts 22,109,980 8,362,709
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies, futures and
options contracts 28,069,985 13,695,426
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 51,391,738 23,171,907
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (1,119,140) (662,515)
- ------------------------------------------------------------------------------
Distributions to shareholders from realized
capital gains (8,443,286) (7,442,940)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 38,384,566 60,971,328
- ------------------------------------------------------------------------------
Net increase in net assets 80,213,878 76,037,780
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 178,637,892 102,600,112
- ------------------------------------------------------------------------------
End of year $258,851,770 $178,637,892
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $183,975,681 $145,591,115
- ------------------------------------------------------------------------------
Undistributed net investment income 1,182,806 1,090,173
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
options contracts 21,643,385 7,976,691
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and options
contracts 52,049,898 23,979,913
- ------------------------------------------------------------------------------
$258,851,770 $178,637,892
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to the AIM V.I. Growth Fund (the "Fund"). The Fund's investment objective is
to seek growth of capital principally through investment in common stocks of
seasoned and better capitalized companies considered by AIM to have strong
earnings momentum. Currently, shares of the Fund are sold only to insurance
company separate accounts to fund the benefits of variable annuity contracts
and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices
on that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices based upon quotes furnished
by market makers for such securities. If no mean is available, as is the case
in some foreign markets, the closing bid will be used absent a last sales
price. Each security reported on the NASDAQ National Market System is valued
at the last sales price on the valuation date or absent a last sales price,
at the mean of the closing bid and asked prices. Debt obligations (including
convertible bonds) are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as yield, type of issue, coupon rate and maturity
date. Securities for which market prices are not provided by any of the above
methods are valued at the mean between last bid and asked prices based upon
quotes furnished by independent sources. Securities for which market
quotations either are not readily available or are questionable are valued at
fair value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of
Directors. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value. Generally, trading
in foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
AIM V.I. GROWTH FUND
FS-46
<PAGE> 118
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
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 or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
F. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
G. Put options - The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The option's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
H. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
I. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I
M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $44,692 for such
services.
AIM V.I. GROWTH FUND
FS-47
<PAGE> 119
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,727 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to
the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $863 during the year ended December 31, 1997. The Fund also
received reductions in custodian fees of $845 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $1,708 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees, if
so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1997 was
$278,678,426 and $271,014,953, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $54,538,052
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,523,682)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $52,014,370
==========================================================================
</TABLE>
Cost of investments for tax purposes is $174,253,976.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold 2,757,339 $ 51,600,352 3,676,649 $57,637,947
- ----------------------------------------------------------------------------
Issued as reinvestment of
distributions 492,909 9,562,426 511,063 8,105,455
- ----------------------------------------------------------------------------
Reacquired (1,185,922) (22,778,212) (304,826) (4,772,074)
- ----------------------------------------------------------------------------
2,064,326 $ 38,384,566 3,882,886 $60,971,328
============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of year 824 $ 342,973
------------------------------------------
Written 5,180 1,732,123
------------------------------------------
Closed (2,655) (1,028,115)
------------------------------------------
Exercised (1,251) (372,509)
------------------------------------------
Expired (283) (142,568)
------------------------------------------
End of year 1,815 $ 531,904
==========================================
</TABLE>
Open call options written at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online Inc. Jan. 98 80 155 $ 80,782 $158,875 $ (78,093)
Applied Materials Jan. 98 37.5 90 25,042 1,406 23,636
Bed Bath & Beyond, Inc. Feb. 98 35 180 25,334 84,375 (59,041)
Bristol-Myers Squibb Co. Jan. 98 95 241 106,562 52,719 53,843
ConAgra, Inc. Mar. 98 37.5 220 39,214 9,625 29,589
Cendant Corp. Jan. 98 75 350 61,044 266,875 (205,831)
Home Depot, Inc. Jan. 98 55 139 44,757 54,731 (9,974)
Lucent Technologies,
Inc. Jan. 98 85 220 64,495 15,125 49,370
Northern Telecom Ltd. Mar. 98 95 93 52,512 41,269 11,243
Safeway, Inc. Jan. 98 60 127 32,162 46,831 (14,669)
----- -------- -------- ---------
1,815 $531,904 $731,831 $(199,927)
===== ======== ======== =========
</TABLE>
AIM V.I. GROWTH FUND
FS-48
<PAGE> 120
NOTE 8 - PUT OPTIONS CONTRACTS PURCHASED
Transactions in put options purchased during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
-------------------
NUMBER OF PREMIUMS
CONTRACTS PAID
--------- ---------
<S> <C> <C>
Beginning of year -- $ --
----------------------------------------
Purchased 2,047 565,769
----------------------------------------
Closed (500) (182,680)
----------------------------------------
Expired (230) (32,315)
----------------------------------------
End of year 1,317 $ 350,774
========================================
</TABLE>
Open put options held at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS PAID MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online Inc. Jan. 98 70 155 $ 70,928 $ 3,875 $ (67,053)
Applied Materials, Inc. Jan. 98 32.5 180 51,165 57,375 6,210
Bed Bath & Beyond, Inc. Feb. 98 30 180 26,415 3,938 (22,477)
Cendant Corp. Jan. 98 65 350 75,521 6,563 (68,958)
Home Depot, Inc. Jan. 98 50 139 14,178 1,303 (12,875)
Lucent Technologies,
Inc. Jan. 98 75 220 72,160 19,250 (52,910)
Northern Telecom Ltd. Mar. 98 85 93 40,407 44,754 4,347
----- -------- -------- ---------
1,317 $350,774 $137,058 $(213,716)
===== ======== ======== =========
</TABLE>
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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>
DECEMBER 31, JANUARY 31,
---------------------------------- -----------------
1997 1996 1995 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 16.25 $ 14.44 $ 10.71 $ 11.59 $ 10.00
- ----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.08 0.07 0.09 0.06 0.02
- ----------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 4.27 2.52 3.65 (0.88) 1.59
- ----------------------------------------------------------------------------------
Total from investment
operations 4.35 2.59 3.74 (0.82) 1.61
- ----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.09) (0.06) (0.01) (0.06) (0.02)
- ----------------------------------------------------------------------------------
Distributions from net
realized gains (0.68) (0.72) -- -- --
- ----------------------------------------------------------------------------------
Total distributions (0.77) (0.78) (0.01) (0.06) (0.02)
- ----------------------------------------------------------------------------------
Net asset value, end of
period $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59
==================================================================================
Total return(a) 26.87% 18.09% 34.89% (7.11)% 16.07%
==================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $258,852 $178,638 $102,600 $45,497 $25,115
==================================================================================
Ratio of expenses to
average net assets 0.73%(b)(c) 0.78% 0.84%(d) 0.95% 0.85%(d)(e)
==================================================================================
Ratio of net investment
income to average net
assets 0.54%(b) 0.79% 0.95%(d) 0.71% 0.51%(d)(e)
==================================================================================
Portfolio turnover rate 132% 143% 125% 179% 99%
==================================================================================
Average brokerage
commission rate paid(f) $ 0.0618 $ 0.0629 N/A N/A N/A
==================================================================================
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $224,542,366.
(c) Ratio includes indirectly paid expenses. Excluding indirectly
paid expenses, the ratio of expenses to average net assets would
have been the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursement. Annualized
ratios of expenses and net investment income (loss) to average
net assets prior to fee waivers and/or expense reimbursements
were 1.50% and (0.14)%, respectively.
(f) The average commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities
for the period divided by the total number of related shares
purchased and sold, which is required to be disclosed for fiscal
years beginning September 1, 1995 and thereafter.
AIM V.I. GROWTH FUND
FS-49
<PAGE> 121
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth and Income Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1997, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the two years in the period then
ended, the eleven month period ended December 31, 1995 and the period May 2,
1994 (commencement of operations) through January 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth and Income Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the two years in the period then ended, the eleven month period ended December
31, 1995 and the period May 2, 1994 (commencement of operations) through
January 31, 1995, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. GROWTH AND INCOME FUND
FS-50
<PAGE> 122
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 80.98%
AIRLINES - 0.68%
Continental Airlines, Inc.(a) 90,000 $ 4,331,250
- ----------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.72%
Lear Corp.(a) 70,000 3,325,000
- ----------------------------------------------------------------------
Tower Automotive, Inc.(a) 30,000 1,261,875
- ----------------------------------------------------------------------
4,586,875
- ----------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 2.33%
Banc One Corp. 70,000 3,801,875
- ----------------------------------------------------------------------
Schweizerischer Bankverein (Switzerland)(a) 10,000 3,106,397
- ----------------------------------------------------------------------
UBS-Union Bank of Switzerland (Switzerland) 4,000 5,780,362
- ----------------------------------------------------------------------
Wells Fargo & Co. 6,500 2,206,344
- ----------------------------------------------------------------------
14,894,978
- ----------------------------------------------------------------------
BANKS (MONEY CENTER) - 4.03%
BankAmerica Corp. 55,000 4,015,000
- ----------------------------------------------------------------------
Chase Manhattan Corp. 135,000 14,782,500
- ----------------------------------------------------------------------
Citicorp 55,000 6,954,062
- ----------------------------------------------------------------------
25,751,562
- ----------------------------------------------------------------------
BANKS (REGIONAL) - 0.29%
Marshall & Ilsley Corp. 30,000 1,863,750
- ----------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.20%
Lubrizol Corp. (The) 35,000 1,290,625
- ----------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.46%
ADC Telecommunications, Inc.(a) 95,000 3,966,250
- ----------------------------------------------------------------------
Comverse Technology, Inc.(a) 35,000 1,365,000
- ----------------------------------------------------------------------
ECI Telecommunications Ltd. (Israel) 80,000 2,040,000
- ----------------------------------------------------------------------
Lucent Technologies, Inc. 25,000 1,996,875
- ----------------------------------------------------------------------
Nokia Oyj - Class A - A-ADR (Finland) 25,000 1,750,000
- ----------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Sweden) 45,000 1,679,062
- ----------------------------------------------------------------------
Tellabs, Inc.(a) 55,000 2,908,125
- ----------------------------------------------------------------------
15,705,312
- ----------------------------------------------------------------------
COMPUTERS (HARDWARE) - 2.72%
Compaq Computer Corp. 100,000 5,643,750
- ----------------------------------------------------------------------
Dell Computer Corp.(a)(b) 30,000 2,520,000
- ----------------------------------------------------------------------
International Business Machines Corp. 65,000 6,796,563
- ----------------------------------------------------------------------
Sun Microsystems, Inc.(a) 60,000 2,392,500
- ----------------------------------------------------------------------
17,352,813
- ----------------------------------------------------------------------
COMPUTERS (NETWORKING) - 1.08%
Bay Networks, Inc.(a) 140,000 3,578,750
- ----------------------------------------------------------------------
Cisco Systems, Inc.(a) 60,000 3,345,000
- ----------------------------------------------------------------------
6,923,750
- ----------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.43%
EMC Corp.(a) 100,000 2,743,750
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES) - 3.56%
America Online, Inc.(a)(b) 40,000 $ 3,567,500
- ----------------------------------------------------------------------
Computer Associates International, Inc. 150,000 7,931,250
- ----------------------------------------------------------------------
Compuware Corp.(a) 44,000 1,408,000
- ----------------------------------------------------------------------
HBO & Co. 50,000 2,400,000
- ----------------------------------------------------------------------
Microsoft Corp.(a) 40,000 5,170,000
- ----------------------------------------------------------------------
Sterling Commerce, Inc.(a) 60,000 2,306,250
- ----------------------------------------------------------------------
22,783,000
- ----------------------------------------------------------------------
CONSUMER FINANCE - 1.58%
Household International, Inc. 40,000 5,102,500
- ----------------------------------------------------------------------
MBNA Corp. 80,000 2,185,000
- ----------------------------------------------------------------------
SLM Holding Corp. 20,000 2,782,500
- ----------------------------------------------------------------------
10,070,000
- ----------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 1.44%
AmeriSource Health Corp.-Class A(a) 21,300 1,240,725
- ----------------------------------------------------------------------
Bergen Brunswig Corp.-Class A 100,000 4,212,500
- ----------------------------------------------------------------------
Cardinal Health, Inc. 30,000 2,253,750
- ----------------------------------------------------------------------
Sysco Corp. 32,500 1,480,781
- ----------------------------------------------------------------------
9,187,756
- ----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.03%
General Electric Co.(b) 90,000 6,603,750
- ----------------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.18%
Kent Electronics Corp.(a) 45,000 1,130,625
- ----------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.73%
Intel Corp. 45,000 3,161,250
- ----------------------------------------------------------------------
Microchip Technology, Inc.(a) 50,000 1,500,000
- ----------------------------------------------------------------------
4,661,250
- ----------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 5.82%
American Express Co. 70,000 6,247,500
- ----------------------------------------------------------------------
CIT Group, Inc. (The)(a) 35,000 1,128,750
- ----------------------------------------------------------------------
Fannie Mae 135,000 7,703,437
- ----------------------------------------------------------------------
Freddie Mac 175,000 7,339,063
- ----------------------------------------------------------------------
MBIA, Inc. 50,000 3,340,625
- ----------------------------------------------------------------------
MGIC Investment Corp. 25,000 1,662,500
- ----------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 165,000 9,755,625
- ----------------------------------------------------------------------
37,177,500
- ----------------------------------------------------------------------
FOODS - 0.54%
Ralston-Ralston Purina Group 16,000 1,487,000
- ----------------------------------------------------------------------
Sara Lee Corp. 35,000 1,970,938
- ----------------------------------------------------------------------
3,457,938
- ----------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.36%
Mirage Resorts, Inc.(a) 100,000 2,275,000
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-51
<PAGE> 123
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED) - 4.39%
Abbott Laboratories 25,000 $ 1,639,063
- -----------------------------------------------------------------------
American Home Products Corp.(b) 100,000 7,650,000
- -----------------------------------------------------------------------
Bristol-Myers Squibb Co. 85,000 8,043,125
- -----------------------------------------------------------------------
Johnson & Johnson 50,000 3,293,750
- -----------------------------------------------------------------------
Warner-Lambert Co. 60,000 7,440,000
- -----------------------------------------------------------------------
28,065,938
- -----------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 4.44%
Lilly (Eli) & Co. 30,000 2,088,750
- -----------------------------------------------------------------------
Merck & Co., Inc. 70,000 7,437,500
- -----------------------------------------------------------------------
Pfizer Inc. 115,000 8,574,688
- -----------------------------------------------------------------------
SmithKline Beecham PLC-ADR (United Kingdom) 200,000 10,287,500
- -----------------------------------------------------------------------
28,388,438
- -----------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.78%
Health Management Associates, Inc.-Class A(a) 65,000 1,641,250
- -----------------------------------------------------------------------
Tenet Healthcare Corp.(a) 100,000 3,312,500
- -----------------------------------------------------------------------
4,953,750
- -----------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.28%
HEALTHSOUTH Corp.(a) 65,000 1,803,750
- -----------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 1.17%
MedPartners, Inc.(a) 250,000 5,593,750
- -----------------------------------------------------------------------
PhyCor, Inc.(a) 70,000 1,890,000
- -----------------------------------------------------------------------
7,483,750
- -----------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.85%
Arterial Vascular Engineering, Inc.(a) 61,600 4,004,000
- -----------------------------------------------------------------------
Boston Scientific Corp.(a) 44,000 2,018,500
- -----------------------------------------------------------------------
Henry Schein, Inc.(a) 70,000 2,450,000
- -----------------------------------------------------------------------
Medtronic, Inc. 64,000 3,348,000
- -----------------------------------------------------------------------
11,820,500
- -----------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.65%
Covance, Inc.(a) 45,000 894,375
- -----------------------------------------------------------------------
Omnicare, Inc. 105,000 3,255,000
- -----------------------------------------------------------------------
4,149,375
- -----------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.16%
Leggett & Platt, Inc. 24,900 1,042,688
- -----------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.59%
Colgate-Palmolive Co. 65,000 4,777,500
- -----------------------------------------------------------------------
Kimberly-Clark Corp. 60,000 2,958,750
- -----------------------------------------------------------------------
Procter & Gamble Co. (The) 30,000 2,394,375
- -----------------------------------------------------------------------
10,130,625
- -----------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.54%
Provident Companies, Inc. 90,000 3,476,250
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE) - 2.47%
Ace, Ltd. 40,000 $ 3,860,000
- -------------------------------------------------------------------------
American International Group, Inc. 65,000 7,068,750
- -------------------------------------------------------------------------
Travelers Group, Inc. 90,000 4,848,750
- -------------------------------------------------------------------------
15,777,500
- -------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 1.56%
Allstate Corp. 90,000 8,178,750
- -------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A 40,000 1,760,000
- -------------------------------------------------------------------------
9,938,750
- -------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.64%
E*TRADE Group, Inc.(a) 170,000 3,910,000
- -------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 90,000 6,564,375
- -------------------------------------------------------------------------
10,474,375
- -------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.44%
Franklin Resources, Inc. 32,000 2,782,000
- -------------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 1.42%
Brunswick Corp. 300,000 9,093,750
- -------------------------------------------------------------------------
LODGING-HOTELS - 0.68%
Carnival Corp.-Class A 41,600 2,303,600
- -------------------------------------------------------------------------
ITT Corp.(a) 25,000 2,071,875
- -------------------------------------------------------------------------
4,375,475
- -------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.94%
Eaton Corp. 25,000 2,231,250
- -------------------------------------------------------------------------
Hillenbrand Industries, Inc. 30,000 1,535,625
- -------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 50,000 2,253,125
- -------------------------------------------------------------------------
6,020,000
- -------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.34%
Diebold, Inc. 43,500 2,202,188
- -------------------------------------------------------------------------
NATURAL GAS - 0.52%
El Paso Natural Gas Co. 50,000 3,325,000
- -------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.77%
Boise Cascade Office Products Corp.(a) 10,400 155,350
- -------------------------------------------------------------------------
Danka Business Systems PLC-ADR (United Kingdom) 89,200 1,421,625
- -------------------------------------------------------------------------
Wallace Computer Services, Inc. 85,900 3,339,363
- -------------------------------------------------------------------------
4,916,338
- -------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 1.38%
Exxon Corp. 55,000 3,365,312
- -------------------------------------------------------------------------
Royal Dutch Petroleum Co.-ADR-New York Shares
(Netherlands) 60,000 3,251,250
- -------------------------------------------------------------------------
YPF Sociedad Anonima-ADR (Argentina) 65,000 2,222,188
- -------------------------------------------------------------------------
8,838,750
- -------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-52
<PAGE> 124
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT) - 2.32%
BJ Services Co.(a) 45,000 $ 3,237,188
- ----------------------------------------------------------------------
EVI, Inc.(a)(b) 45,000 2,328,750
- ----------------------------------------------------------------------
Halliburton 47,500 2,467,031
- ----------------------------------------------------------------------
Hvide Marine, Inc.-Class A(a) 60,000 1,545,000
- ----------------------------------------------------------------------
Petroleum Geo-Services ASA-ADR (Norway)(a) 35,000 2,266,250
- ----------------------------------------------------------------------
Santa Fe International Corp. 60,000 2,441,250
- ----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 3,500 277,375
- ----------------------------------------------------------------------
Transocean Offshore Inc. 6,100 276,788
- ----------------------------------------------------------------------
14,839,632
- ----------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.45%
Tosco Corp. 76,000 2,873,750
- ----------------------------------------------------------------------
PERSONAL CARE - 1.16%
Avon Products, Inc.(b) 55,000 3,375,625
- ----------------------------------------------------------------------
Gillette Co. 40,000 4,017,500
- ----------------------------------------------------------------------
7,393,125
- ----------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 0.52%
Xerox Corp. 45,000 3,321,562
- ----------------------------------------------------------------------
PUBLISHING - 0.38%
Dow Jones & Co., Inc. 45,000 2,415,937
- ----------------------------------------------------------------------
RAILROADS - 0.03%
Kansas City Southern Industries, Inc. 5,700 180,975
- ----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 1.71%
Cali Realty Corp. 50,000 2,050,000
- ----------------------------------------------------------------------
Crescent Real Estate Equities, Co. 60,000 2,362,500
- ----------------------------------------------------------------------
Patriot American Hospitality, Inc. 80,000 2,305,000
- ----------------------------------------------------------------------
Starwood Lodging Trust 40,000 2,315,000
- ----------------------------------------------------------------------
Vornado Realty Trust 40,000 1,877,500
- ----------------------------------------------------------------------
10,910,000
- ----------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONIC) - 0.56%
CompUSA, Inc.(a)(b) 115,000 3,565,000
- ----------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 1.85%
Carson Pirie Scott & Co.(a) 35,000 1,754,375
- ----------------------------------------------------------------------
Federated Department Stores, Inc.(a) 50,000 2,153,125
- ----------------------------------------------------------------------
J.C. Penney Co., Inc. 55,000 3,317,187
- ----------------------------------------------------------------------
Kohl's Corp.(a) 30,000 2,043,750
- ----------------------------------------------------------------------
Proffitt's, Inc.(a) 90,000 2,559,375
- ----------------------------------------------------------------------
11,827,812
- ----------------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.31%
Consolidated Stores Corp.(a) 45,000 1,977,187
- ----------------------------------------------------------------------
RETAIL (DRUG STORES) - 0.32%
Walgreen Co. 65,000 2,039,375
- ----------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.40%
Albertson's, Inc. 30,200 1,430,725
- ----------------------------------------------------------------------
Blue Square-Israel Ltd.-ADR (Israel) 90,000 1,113,750
- ----------------------------------------------------------------------
2,544,475
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE) - 0.35%
Costco Companies, Inc.(a) 50,000 $ 2,231,250
- ------------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.77%
Corporate Express, Inc.(a) 280,000 3,605,000
- ------------------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 53,200 1,293,425
- ------------------------------------------------------------------------
4,898,425
- ------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.20%
Stage Stores, Inc.(a) 35,000 1,308,125
- ------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.80%
Washington Mutual, Inc. 80,000 5,105,000
- ------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 3.57%
Cendant Corp.(a)(b) 301,000 10,346,875
- ------------------------------------------------------------------------
Service Corp. International 275,000 10,157,812
- ------------------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 50,000 2,331,250
- ------------------------------------------------------------------------
22,835,937
- ------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.07%
Ceridian Corp.(a) 55,000 2,519,687
- ------------------------------------------------------------------------
Equifax, Inc. 60,000 2,126,250
- ------------------------------------------------------------------------
Fiserv, Inc.(a) 45,000 2,210,625
- ------------------------------------------------------------------------
6,856,562
- ------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.33%
AT&T Corp. 55,000 3,368,750
- ------------------------------------------------------------------------
MCI Communications Corp. 120,000 5,137,500
- ------------------------------------------------------------------------
8,506,250
- ------------------------------------------------------------------------
TELEPHONE - 2.17%
Cincinnati Bell, Inc. 330,000 10,230,000
- ------------------------------------------------------------------------
SBC Communications, Inc. 50,000 3,662,500
- ------------------------------------------------------------------------
13,892,500
- ------------------------------------------------------------------------
TOBACCO - 1.91%
Philip Morris Companies, Inc. 270,000 12,234,375
- ------------------------------------------------------------------------
WASTE MANAGEMENT - 0.61%
USA Waste Services, Inc.(a) 100,000 3,925,000
- ------------------------------------------------------------------------
Total Common Stocks 517,532,928
- ------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 5.42%
HEALTH CARE (MANAGED CARE) - 0.69%
Medpartners Inc.-$1.44 Conv. Pfd. 200,000 4,400,000
- ------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.22%
Conseco Inc.-$4.278 Conv. PRIDES 50,000 7,800,000
- ------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.11%
Hvide Capital Trust-$3.25 Conv. Pfd. (Acquired
06/24/97; Cost $600,000)(c) 12,000 682,092
- ------------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.15%
Tosco Financial Trust-$2.875 Conv. Pfd. 15,300 1,000,238
- ------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.57%
AES Trust I-Series A-$2.69 Conv. Pfd. 51,000 3,659,250
- ------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.36%
TJX Companies, Inc.-Series E-$7.00 Conv. Pfd. 6,000 2,280,000
- ------------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-53
<PAGE> 125
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER) - 0.17%
Automatic Common Exchange Security Trust II-$1.55
Conv. Pfd. 45,000 $ 1,057,500
- ------------------------------------------------------------------------------
SHIPPING - 0.18%
CNF Trust I-$2.50 Conv. Pfd. 20,000 1,170,000
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.97%
WorldCom, Inc.-$2.68 Dep. Conv. Pfd. 120,000 12,600,000
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks 34,649,080
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
CONVERTIBLE CORPORATE BONDS - 6.27%
COMPUTERS (SOFTWARE & SERVICES) - 0.59%
Platinum Technology, Inc., Conv. Sub. Notes, 6.25%,
12/15/02 (Acquired 12/11/97; Cost $1,997,000)(c) $ 2,000,000 2,147,500
- ------------------------------------------------------------------------------
Veritas Software Corp., Conv. Sub. Notes, 5.25%,
11/01/04 (Acquired 10/09/97; Cost $1,500,000)(c) 1,500,000 1,627,500
- ------------------------------------------------------------------------------
3,775,000
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.44%
SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06
(Acquired 10/24/96-12/04/97; Cost $2,409,413)(c) 1,500,000 2,809,770
- ------------------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.22%
Analog Devices, Conv. Sub. Notes, 3.50%, 12/01/00 1,000,000 1,419,680
- ------------------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.44%
Dura Pharmaceuticals Inc., Sub. Notes, 3.50%,
07/15/02 2,500,000 2,810,350
- ------------------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 1.04%
NCS Healthcare Inc., Conv. Sub. Notes, 5.75%,
08/15/04 2,500,000 2,550,550
- ------------------------------------------------------------------------------
Omnicare, Inc., Sub. Deb., 5.00%, 12/01/07 (Acquired
12/04/97; Cost $4,000,000)(c) 4,000,000 4,060,000
- ------------------------------------------------------------------------------
6,610,550
- ------------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.39%
Thermo Electron Corp., Conv. Sub. Deb., 4.25%,
01/01/03 (Acquired 06/20/97-06/27/97; Cost
$2,294,492)(c) 2,000,000 2,500,000
- ------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.40%
U.S. Filter Corp., Conv. Sub. Notes, 4.50%, 12/15/01 2,500,000 2,575,000
- ------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.35%
Danka Business Systems PLC, (United Kingdom) Conv.
Sub. Notes, 6.75%, 04/01/02 2,500,000 2,237,450
- ------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 1.04%
Diamond Offshore Drilling, Inc., Conv. Sub. Notes,
3.75%, 02/15/07 3,500,000 4,795,420
- ------------------------------------------------------------------------------
Nabors Industries, Inc., Conv. Sub. Notes, 5.00%,
05/15/06 1,000,000 1,837,670
- ------------------------------------------------------------------------------
6,633,090
- ------------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.21%
Home Depot, Inc., Conv. Sub. Notes, 3.25%, 10/01/01 1,000,000 1,347,170
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
RETAIL (SPECIALTY) - 0.36%
Staples Inc., Conv. Sub. Deb., 4.50%, 10/01/00
(Acquired 10/23/97-12/30/97; Cost $2,299,750)(c) $ 1,750,000 $ 2,303,438
- ------------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.49%
Career Horizons, Inc., Conv. Bonds, 7.00%, 11/01/02 1,500,000 3,100,500
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.30%
Tel-Save Holdings, Inc., Conv. Sub. Notes, 5.00%,
12/15/04 (Acquired 12/05/97; Cost $2,000,000)(c) 2,000,000 1,930,000
- ------------------------------------------------------------------------------
Total Convertible Corporate Bonds 40,051,998
- ------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 5.24%
9.125%, 05/15/99(d) 9,000,000 9,405,720
- ------------------------------------------------------------------------------
11.75%, 02/15/01(d) 10,000,000 11,731,000
- ------------------------------------------------------------------------------
13.125%, 05/15/01(d) 5,000,000 6,134,500
- ------------------------------------------------------------------------------
13.375%, 08/15/01 5,000,000 6,244,250
- ------------------------------------------------------------------------------
Total U.S. Treasury Securities 33,515,470
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT(e) - 4.42%
Smith Barney, Inc. 6.75%, 01/02/98(f) 28,276,446 28,276,446
- ------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 102.33% 654,025,922
- ------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (2.33)% (14,913,377)
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $639,112,545
==============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security
(b) A portion of these securities are subject to call options written. See
Note 7.
(c) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/97 was $18,060,300,
which represented 2.83% of the Fund's net assets.
(d) A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See note 9.
(e) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts and certain non-registered investment companies
managed by the investment advisor.
(f) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Dep. - Depositary
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
Sub. - Subordinated
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-54
<PAGE> 126
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $566,330,159) $654,025,922
- ----------------------------------------------------------------------
Cash 16,995
- ----------------------------------------------------------------------
Receivables for:
Investments sold 9,550,866
- ----------------------------------------------------------------------
Capital stock sold 978,416
- ----------------------------------------------------------------------
Dividends and interest 1,693,975
- ----------------------------------------------------------------------
Options purchased 145,453
- ----------------------------------------------------------------------
Variation margin 37,500
- ----------------------------------------------------------------------
Investment for deferred compensation plan 14,757
- ----------------------------------------------------------------------
Other assets 12,621
- ----------------------------------------------------------------------
Total assets 666,476,505
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 26,264,800
- ----------------------------------------------------------------------
Capital stock reacquired 93,155
- ----------------------------------------------------------------------
Options written 609,300
- ----------------------------------------------------------------------
Deferred compensation plan 14,757
- ----------------------------------------------------------------------
Accrued advisory fees 322,312
- ----------------------------------------------------------------------
Accrued administrative services fees 3,500
- ----------------------------------------------------------------------
Accrued directors' fees 1,653
- ----------------------------------------------------------------------
Accrued operating expenses 54,483
- ----------------------------------------------------------------------
Total liabilities 27,363,960
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $639,112,545
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 33,868,543
======================================================================
Net asset value, offering and redemption price per share $ 18.87
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $36,441 foreign withholding tax) $ 5,115,419
- -----------------------------------------------------------------------------
Interest 2,487,104
- -----------------------------------------------------------------------------
Total investment income 7,602,523
- -----------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,609,695
- -----------------------------------------------------------------------------
Administrative services fees 43,065
- -----------------------------------------------------------------------------
Custodian fees 84,481
- -----------------------------------------------------------------------------
Directors' fees and expenses 9,116
- -----------------------------------------------------------------------------
Other 93,580
- -----------------------------------------------------------------------------
Total expenses 2,839,937
- -----------------------------------------------------------------------------
Less: Expenses paid indirectly (5,032)
- -----------------------------------------------------------------------------
Net expenses 2,834,905
- -----------------------------------------------------------------------------
Net investment income 4,767,618
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCY TRANSACTIONS, FUTURES, AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 9,687,148
- -----------------------------------------------------------------------------
Foreign currency transactions 80,193
- -----------------------------------------------------------------------------
Future contracts (236,996)
- -----------------------------------------------------------------------------
Option contracts 205,761
- -----------------------------------------------------------------------------
9,736,106
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 67,471,540
- -----------------------------------------------------------------------------
Futures contracts (277,200)
- -----------------------------------------------------------------------------
Option contracts (204,922)
- -----------------------------------------------------------------------------
66,989,418
- -----------------------------------------------------------------------------
Net gain from investment securities, foreign currency
transactions, futures and option contracts 76,725,524
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $81,493,142
=============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
FS-55
<PAGE> 127
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,767,618 $ 2,140,854
- -------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currency transactions, futures and option
contracts 9,736,106 465,498
- -------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, futures and option contracts 66,989,418 17,682,951
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 81,493,142 20,289,303
- -------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (326,695) (1,850,460)
- -------------------------------------------------------------------------------
Distributions from net realized gains (490,042) (401,149)
- -------------------------------------------------------------------------------
Net increase from capital stock transactions 349,104,509 152,726,725
- -------------------------------------------------------------------------------
Net increase in net assets 429,780,914 170,764,419
- -------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 209,331,631 38,567,212
- -------------------------------------------------------------------------------
End of year $639,112,545 $209,331,631
===============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $537,626,187 $188,521,678
- -------------------------------------------------------------------------------
Undistributed net investment income 4,850,844 329,728
- -------------------------------------------------------------------------------
Undistributed net realized gain on sales of
investment securities, foreign currency
transactions, futures and option contracts 9,421,873 256,002
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currency transactions and option
contracts 87,213,641 20,224,223
- -------------------------------------------------------------------------------
$639,112,545 $209,331,631
===============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to the AIM V.I. Growth and Income Fund (the "Fund"). The Fund's investment
objective is to seek growth of capital, with current income as a secondary
objective. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts and
variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between the last bid and
asked prices based upon quotes furnished by independent sources. Securities
for which market quotations either are not readily available or are
questionable are valued at fair value as determined in good faith by or
under the supervision of the Company's officers in a manner specifically
authorized by the Board of Directors. Short-term obligations having 60 days
or less to maturity are valued at amortized cost which approximates market
value. Generally, trading in foreign securities is
AIM V.I. GROWTH AND INCOME FUND
FS-56
<PAGE> 128
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, 1997,
undistributed net investment income was increased and undistributed net
realized gains decreased by $80,193 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions.
F. Foreign Currency Contracts -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written. The Fund will
not write a covered call option if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 25% of the net assets of the
Fund.
H. Put options -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
options's underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The options's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting
AIM V.I. GROWTH AND INCOME FUND
FS-57
<PAGE> 129
services to the Fund. During the year ended December 31, 1997, AIM was
reimbursed $43,065 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,950 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $1,957 during the year ended December 31, 1997. The Fund
also received reductions in custodian fees of $3,075 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $5,032 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $892,669,891 and $547,036,684, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $94,187,176
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,077,496)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $86,109,680
==========================================================================
</TABLE>
Cost of investments for tax purposes is $567,916,242.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 20,645,975 $361,699,824 10,983,786 $153,919,542
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 44,268 816,737 154,220 2,251,608
- ------------------------------------------------------------------------------
Reacquired (745,032) (13,412,052) (255,903) (3,444,425)
- ------------------------------------------------------------------------------
19,945,211 $349,104,509 10,882,103 $152,726,725
==============================================================================
</TABLE>
NOTE 7 - OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of year -- $ --
- -----------------------------------------
Written 10,942 2,589,611
- -----------------------------------------
Closed (5,011) (1,443,882)
- -----------------------------------------
Exercised (140) (65,272)
- -----------------------------------------
Expired (2,691) (456,212)
- -----------------------------------------
End of year 3,100 $624,245
=========================================
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-58
<PAGE> 130
Open call option contracts written at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 1997 MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ----- -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
America Online, Inc. Jan $ 90 150 $ 35,500 $ 48,750 $ (13,250)
- --------------------------------------------------------------------------------------
American Home Products
Corp. Jan 80 300 19,399 14,063 5,336
- --------------------------------------------------------------------------------------
Avon Products, Inc. Jan 55 250 170,869 165,625 5,244
- --------------------------------------------------------------------------------------
Cendant Corp. Feb 35 900 91,993 137,812 (45,819)
- --------------------------------------------------------------------------------------
CompUSA, Inc. Feb 35 600 80,697 101,175 (20,478)
- --------------------------------------------------------------------------------------
Dell Computer Corp. Jan 100 250 28,937 6,250 22,687
- --------------------------------------------------------------------------------------
EVI, Inc. Feb 55 450 139,270 73,125 66,145
- --------------------------------------------------------------------------------------
General Electric Co. Mar 75 200 57,580 62,500 (4,920)
- --------------------------------------------------------------------------------------
3,100 $624,245 $609,300 $ 14,945
======================================================================================
</TABLE>
NOTE 8 - PUT OPTIONS PURCHASED
Transactions in put options purchased during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
PUT OPTION
CONTRACTS
-------------------
NUMBER OF PREMIUMS
CONTRACTS PAID
--------- ---------
<S> <C> <C>
Beginning of year -- $ --
- ---------------------------------------
Purchased 2,437 484,119
- ---------------------------------------
Closed (475) (118,799)
- ---------------------------------------
End of year 1,962 $365,320
=======================================
</TABLE>
Open put option contracts purchased at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS 1997 MARKET APPRECIATION
MONTH PRICE CONTRACTS PAID VALUE (DEPRECIATION)
-------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
American Home Products
Corp. Apr $70 300 $ 85,367 $ 58,125 $ (27,242)
- ---------------------------------------------------------------------------------------
Diamond Offshore
Drilling, Inc. Jan 40 400 72,700 7,500 (65,200)
- ---------------------------------------------------------------------------------------
EVI, Inc. Jan 40 225 65,600 2,813 (62,787)
- ---------------------------------------------------------------------------------------
EVI, Inc. Jan 45 225 51,300 10,547 (40,753)
- ---------------------------------------------------------------------------------------
Halliburton Co. Jan 45 237 31,817 7,406 (24,411)
- ---------------------------------------------------------------------------------------
Nabors Industries, Inc. Jan 30 275 33,619 51,562 17,943
- ---------------------------------------------------------------------------------------
Santa Fe International
Corp. Jan 35 300 24,917 7,500 (17,417)
- ---------------------------------------------------------------------------------------
1,962 $365,320 $145,453 $(219,867)
=======================================================================================
</TABLE>
NOTE 9- OPEN FUTURES CONTRACTS
On December 31, 1997, $538,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF MONTH/ APPRECIATION
CONTRACTS COMMITMENT (DEPRECIATION)
--------- ---------- --------------
<S> <C> <C> <C>
Russell 2000 Index 30 Mar 98 $(354,625)
- -------------------------------------------------------
S&P 500 Index 30 Mar 98 77,425
- -------------------------------------------------------
$(277,200)
=======================================================
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
FS-59
<PAGE> 131
NOTE 10 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, the
eleven months ended December 31, 1995 and the period May 2, 1994 (date
operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
December 31,
--------------------------------- January 31,
1997 1996 1995 1995
-------- -------- ------- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.03 $ 12.68 $ 9.98 $10.00
- -------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.13 0.16 0.14 0.11
- -------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 3.74 2.36 3.11 (0.02)
- -------------------------------------------------------------------------------
Total from investment
operations 3.87 2.52 3.25 0.09
- -------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.01) (0.14) (0.14) (0.11)
- -------------------------------------------------------------------------------
Distributions from
capital gains (0.02) (0.03) (0.41) --
- -------------------------------------------------------------------------------
Total distributions (0.03) (0.17) (0.55) (0.11)
- -------------------------------------------------------------------------------
Net asset value, end of
period $ 18.87 $ 15.03 $ 12.68 $ 9.98
===============================================================================
Total return(a) 25.72% 19.95% 32.65% 0.90%
===============================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $639,113 $209,332 $38,567 $7,380
===============================================================================
Ratio of expenses to
average net assets 0.69%(b)(c) 0.78% 0.78%(d) 1.07%(d)(e)
===============================================================================
Ratio of net investment
income to average net
assets 1.15%(b) 2.05% 1.92%(d) 1.95%(d)(e)
===============================================================================
Portfolio turnover rate 135% 148% 145% 96%
===============================================================================
Average brokerage
commission rate paid(f) $ 0.0612 $ 0.0644 N/A N/A
===============================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $414,115,808.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.72% (annualized) and 1.30% (annualized),
respectively.
(f) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. GROWTH AND INCOME FUND
FS-60
<PAGE> 132
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. International Equity Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1997, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the period
then ended, the eleven month period ended December 31, 1995, the year ended
January 31, 1995, and the period May 5, 1993 (commencement of operations)
through January 31, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, 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. International Equity Fund, as of December 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the two years in the period then ended, the eleven month period ended December
31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. INTERNATIONAL EQUITY FUND
FS-61
<PAGE> 133
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 94.10%
ARGENTINA - 2.81%
Banco de Galicia y Buenos Aires S.A. de C.V.-ADR
(Banks-Regional) 35,574 $ 916,031
- ------------------------------------------------------------------------------
Banco Rio de La Plata S.A. (Banks-Money Center)(a) 40,000 560,000
- ------------------------------------------------------------------------------
Perez Companc S.A.-Class B (Oil & Gas-Refining &
Marketing) 167,141 1,193,614
- ------------------------------------------------------------------------------
Telefonica de Argentina S.A.-ADR (Telephone) 41,000 1,527,250
- ------------------------------------------------------------------------------
YPF Sociedad Anonima-ADR (Oil-International
Integrated) 50,400 1,723,050
- ------------------------------------------------------------------------------
5,919,945
- ------------------------------------------------------------------------------
AUSTRALIA - 1.92%
Boral Ltd. (Engineering & Construction) 402,000 1,016,574
- ------------------------------------------------------------------------------
Coca-Cola Amatil Ltd. (Beverages-Non-Alcoholic) 80,241 599,638
- ------------------------------------------------------------------------------
QBE Insurance Group Ltd. (Insurance-Property-
Casualty) 231,019 1,039,963
- ------------------------------------------------------------------------------
Telstra Corp. Ltd. (Telephone) 157,160 331,870
- ------------------------------------------------------------------------------
Westpac Banking Corp., Ltd. (Banking) 168,000 1,074,793
- ------------------------------------------------------------------------------
4,062,838
- ------------------------------------------------------------------------------
AUSTRIA - 0.75%
OMV A.G. (Oil & Gas-Refining & Marketing) 6,500 900,526
- ------------------------------------------------------------------------------
VA Technologie A.G. (Engineering & Construction) 4,550 690,884
- ------------------------------------------------------------------------------
1,591,410
- ------------------------------------------------------------------------------
BELGIUM - 1.21%
Barco Industries (Manufacturing-Diversified) 4,000 734,123
- ------------------------------------------------------------------------------
COLRUYT S.A. (Retail-Food Chains) 1,500 766,174
- ------------------------------------------------------------------------------
UCB S.A. (Manufacturing-Diversified) 320 1,056,274
- ------------------------------------------------------------------------------
2,556,571
- ------------------------------------------------------------------------------
BRAZIL - 2.19%
Companhia Energetica de Minas Gerais (Electric
Companies) 17,000 738,614
- ------------------------------------------------------------------------------
Petroleo Brasileiro S.A.-Petrobras, Pfd. (Oil & Gas-
Exploration & Production) 3,013 704,645
- ------------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.-Telebras-ADR
(Telephone) 14,700 1,711,631
- ------------------------------------------------------------------------------
Telecomunicacoes de Sao Paulo S.A.-TELESP, Pfd.
(Telephone) 5,500 1,463,595
- ------------------------------------------------------------------------------
4,618,485
- ------------------------------------------------------------------------------
CANADA - 3.59%
Bank of Montreal (Banks-Money Center) 11,800 523,096
- ------------------------------------------------------------------------------
Canadian National Railway Co. (Railroads) 9,000 425,250
- ------------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas-
Exploration & Production)(a) 33,000 706,623
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA - (CONTINUED)
Canadian Pacific, Ltd. (Railroads) 15,000 $ 408,750
- ------------------------------------------------------------------------------
Magna International, Inc.-Class A (Machinery-
Diversified) 10,050 630,125
- ------------------------------------------------------------------------------
Northern Telecom Ltd.-ADR (Communications Equipment) 6,000 534,000
- ------------------------------------------------------------------------------
Petro-Canada (Oil-Domestic Integrated) 54,000 982,471
- ------------------------------------------------------------------------------
Royal Bank of Canada (Savings & Loan Companies) 18,800 994,563
- ------------------------------------------------------------------------------
Suncor, Inc. (Oil-International Integrated) 38,000 1,302,963
- ------------------------------------------------------------------------------
Toronto-Dominion Bank (Banks-Regional) 28,100 1,057,892
- ------------------------------------------------------------------------------
7,565,733
- ------------------------------------------------------------------------------
CHILE - 0.64%
Cia. de Telecomunicaciones de Chile S.A.-ADR
(Telephone) 25,500 761,813
- ------------------------------------------------------------------------------
Quinenco S.A.-ADR (Financial-Diversified)(a) 50,500 580,750
- ------------------------------------------------------------------------------
1,342,563
- ------------------------------------------------------------------------------
DENMARK - 1.17%
Novo Nordisk A/S (Health Care-Drugs-Generic & Other) 17,200 2,460,048
- ------------------------------------------------------------------------------
FINLAND - 0.46%
Nokia Oy A.B.-Class A (Telecommunications-
Cellular/Wireless) 14,000 978,545
- ------------------------------------------------------------------------------
FRANCE - 10.47%
Accor S.A. (Lodging-Hotels) 2,900 539,188
- ------------------------------------------------------------------------------
Alcatel Alsthom (Manufacturing-Diversified) 8,000 1,016,865
- ------------------------------------------------------------------------------
AXA S.A. (Insurance-Multi-Line) 13,000 1,005,915
- ------------------------------------------------------------------------------
Banque Nationale de Paris (Banks-Major Regional) 24,300 1,291,613
- ------------------------------------------------------------------------------
Cap Gemini Sogeti S.A. (Computers-Software &
Services) 16,000 1,311,955
- ------------------------------------------------------------------------------
Compagnie Francaise d'Etudes et de Construction
Technip (Oil & Gas-Refining & Marketing) 4,250 448,409
- ------------------------------------------------------------------------------
Elf Aquitaine S.A. (Oil & Gas-Refining & Marketing) 9,000 1,046,772
- ------------------------------------------------------------------------------
Essilor International (Manufacturing-Specialized) 2,275 680,402
- ------------------------------------------------------------------------------
Lafarge S.A. (Engineering & Construction) 13,600 892,355
- ------------------------------------------------------------------------------
Legrand S.A. (Housewares) 3,000 597,657
- ------------------------------------------------------------------------------
Pinault-Printemps-Redoute S.A. (Retail-General
Merchandise) 3,560 1,899,337
- ------------------------------------------------------------------------------
Promodes (Retail-Food Chains) 2,750 1,140,940
- ------------------------------------------------------------------------------
Renault S.A.(Automobiles)(a) 45,000 1,265,847
- ------------------------------------------------------------------------------
Renault S.A.(Automobiles) (Acquired 07/31/97; cost
$581,584)(a)(b) 21,000 590,729
- ------------------------------------------------------------------------------
Rexel S.A. (Distributors-Food & Health) 2,000 623,079
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-62
<PAGE> 134
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - (CONTINUED)
Rhone-Poulenc-Class A (Chemicals-Diversified) 26,500 $ 1,187,073
- ------------------------------------------------------------------------------
Schneider S.A. (Housewares) 15,800 857,928
- ------------------------------------------------------------------------------
Societe BIC S.A. (Office Equipment & Supplies) 22,000 1,605,815
- ------------------------------------------------------------------------------
Societe Generale (Banks-Major Regional) 17,000 2,316,192
- ------------------------------------------------------------------------------
Sodexho S.A. (Services-Commercial & Consumer) 900 481,964
- ------------------------------------------------------------------------------
Total S.A.-Class B (Oil & Gas-Refining & Marketing) 10,300 1,120,960
- ------------------------------------------------------------------------------
Valeo S.A. (Auto Parts & Equipment) 2,500 169,561
- ------------------------------------------------------------------------------
22,090,556
- ------------------------------------------------------------------------------
GERMANY - 5.43%
Adidas A.G. (Footwear) 4,100 539,222
- ------------------------------------------------------------------------------
Adidas A.G. (Footwear) (Acquired 04/11/97; cost
$837,524)(b) 7,950 1,045,564
- ------------------------------------------------------------------------------
Allianz A.G. (Insurance-Multi-Line) 2,300 595,775
- ------------------------------------------------------------------------------
Bayerische Vereinsbank A.G. (Banks-Major Regional) 18,000 1,177,654
- ------------------------------------------------------------------------------
Commerzbank A.G. (Banks-Major Regional) 29,500 1,160,978
- ------------------------------------------------------------------------------
Continental A.G. (Auto Parts & Equipment) 28,000 617,899
- ------------------------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major Regional) 24,000 1,107,282
- ------------------------------------------------------------------------------
Henkel KGaA (Chemicals-Diversified) 12,650 798,096
- ------------------------------------------------------------------------------
Mannesmann A.G. (Machinery-Diversified) 2,380 1,202,568
- ------------------------------------------------------------------------------
Porsche A.G. (Automobiles) 300 500,278
- ------------------------------------------------------------------------------
SAP A.G. (Computers-Software & Services) 2,650 805,017
- ------------------------------------------------------------------------------
SAP A.G., Pfd. (Computers-Software & Services) 2,700 883,241
- ------------------------------------------------------------------------------
VEBA A.G. (Manufacturing-Diversified) 15,000 1,021,401
- ------------------------------------------------------------------------------
11,454,975
- ------------------------------------------------------------------------------
HONG KONG - 3.99%
Cheung Kong (Holdings) Ltd. (Land Development) 86,000 563,234
- ------------------------------------------------------------------------------
China Telecom (Hong Kong) Ltd.-ADR
(Telecommunications-Cellular/Wireless)(a) 16,900 567,206
- ------------------------------------------------------------------------------
Cosco Pacific Ltd. (Financial-Diversified) 962,000 782,114
- ------------------------------------------------------------------------------
First Pacific Company Ltd. (Distributors-Food &
Health) 1,137,368 550,411
- ------------------------------------------------------------------------------
Hong Kong & China Gas Co. Ltd. (Natural Gas) 878,352 1,700,256
- ------------------------------------------------------------------------------
HSBC Holdings PLC (Banks-Major Regional) 48,000 1,183,120
- ------------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Retail-Food Chains) 242,000 1,517,770
- ------------------------------------------------------------------------------
New World Infrastructure Ltd. (Services-Commercial &
Consumer)(a) 290,000 653,052
- ------------------------------------------------------------------------------
Ng Fung Hong Ltd. (Foods) 460,000 483,804
- ------------------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Land Development) 59,600 415,331
- ------------------------------------------------------------------------------
8,416,298
- ------------------------------------------------------------------------------
INDONESIA - 0.61%
Gulf Indonesia Resources Ltd. (Oil-International
Integrated)(a) 45,700 1,005,400
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INDONESIA - (CONTINUED)
PT Indosat (Telecommunications-Cellular/Wireless) 91,000 $ 168,764
- -------------------------------------------------------------------------------
PT Indosat-ADR (Telecommunications-Cellular/Wireless) 6,400 123,600
- -------------------------------------------------------------------------------
1,297,764
- -------------------------------------------------------------------------------
IRELAND - 0.67%
Bank of Ireland (Banks-Major Regional) 38,500 591,211
- -------------------------------------------------------------------------------
Elan Corp. PLC-ADR (Health Care-Drugs-Generic &
Other)(a) 16,000 819,000
- -------------------------------------------------------------------------------
1,410,211
- -------------------------------------------------------------------------------
ITALY - 4.61%
Assicurazioni Generali (Insurance-Multi-Line) 49,100 1,208,237
- -------------------------------------------------------------------------------
Credito Italiano S.p.A. (Banks-Major Regional) 610,000 1,886,897
- -------------------------------------------------------------------------------
Ente Nazionale Idrocarburi S.p.A. (Oil & Gas-Refining
& Marketing) 201,000 1,147,825
- -------------------------------------------------------------------------------
Istituto Mobiliare Italiano S.p.A. (Banks-Major
Regional) 81,000 960,324
- -------------------------------------------------------------------------------
Pirelli S.p.A. (Electrical Equipment) 387,441 1,026,970
- -------------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Telecommunications-
Cellular/Wireless) 365,000 1,684,076
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 283,333 1,812,434
- -------------------------------------------------------------------------------
9,726,763
- -------------------------------------------------------------------------------
JAPAN - 13.87%
Advantest Corp. (Electronics-Instrumentation) 24,530 1,390,227
- -------------------------------------------------------------------------------
Bridgestone Corp. (Auto Parts & Equipment) 47,000 1,018,687
- -------------------------------------------------------------------------------
Canon, Inc. (Office Equipment & Supplies) 80,000 1,862,602
- -------------------------------------------------------------------------------
Fuji Photo Film Co. (Leisure Time-Products) 52,000 1,991,269
- -------------------------------------------------------------------------------
Hitachi Cable, Ltd. (Metal Fabricators) 124,000 795,834
- -------------------------------------------------------------------------------
Honda Motor Co., Ltd. (Automobiles) 61,000 2,237,803
- -------------------------------------------------------------------------------
Hoya Corp.(Manufacturing-Specialized) 24,000 753,619
- -------------------------------------------------------------------------------
Ibiden Co., Ltd. (Electronics-Component Distributors) 118,000 1,427,893
- -------------------------------------------------------------------------------
Matsushita Electric Industrial Co. Ltd. (Electrical
Equipment) 57,000 833,806
- -------------------------------------------------------------------------------
Minebea Company Ltd. (Electronics-Component
Distributors) 157,000 1,683,388
- -------------------------------------------------------------------------------
Murata Manufacturing Co., Ltd. (Electronics-
Component Distributors) 31,000 778,739
- -------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. (Telephone) 2,320 1,990,044
- -------------------------------------------------------------------------------
Nippon Television Network (Broadcasting-Television,
Radio & Cable) 2,690 789,056
- -------------------------------------------------------------------------------
NTT Data Communications Systems Co. (Computers-
Software & Services) 450 2,422,838
- -------------------------------------------------------------------------------
Ricoh Corp. Ltd. (Office Equipment & Supplies) 108,000 1,339,971
- -------------------------------------------------------------------------------
Rohm Co. (Electronics-Component Distributors) 20,000 2,037,221
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-63
<PAGE> 135
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
JAPAN - (CONTINUED)
SMC Corp.(Machinery-Diversified) 10,200 $ 898,369
- -------------------------------------------------------------------------------
Sony Corp. (Electronics-Component Distributors) 23,000 2,043,348
- -------------------------------------------------------------------------------
TDK Corp. (Electrical Equipment) 24,000 1,808,685
- -------------------------------------------------------------------------------
Tokyo Electron Ltd. (Electronics-Semiconductors) 36,500 1,168,492
- -------------------------------------------------------------------------------
29,271,891
- -------------------------------------------------------------------------------
MEXICO - 5.10%
Cifra S.A. de C.V. (Retail-General Merchandise) 538,000 1,206,592
- -------------------------------------------------------------------------------
Coca-Cola Femsa S.A.-ADR (Beverages-Non-Alcoholic) 31,600 1,832,800
- -------------------------------------------------------------------------------
Fomento Economico Mexicano, S.A. de C.V.-Class B
(Beverages-Alcoholic) 232,000 1,862,784
- -------------------------------------------------------------------------------
Grupo Industrial Maseca S.A. de C.V.-Class B (Foods) 646,200 667,779
- -------------------------------------------------------------------------------
Grupo Televisa S.A.-GDR (Entertainment)(a) 35,600 1,377,275
- -------------------------------------------------------------------------------
Kimberly-Clark de Mexico, S.A. de C.V.-Class A (Paper
& Forest Products) 322,000 1,552,048
- -------------------------------------------------------------------------------
Panamerican Beverages, Inc.-Class A (Beverages-Non-
Alcoholic) 60,200 1,964,025
- -------------------------------------------------------------------------------
TV Azteca, S.A. de C.V.-ADR (Broadcasting-Television,
Radio & Cable)(a) 13,400 302,337
- -------------------------------------------------------------------------------
10,765,640
- -------------------------------------------------------------------------------
NETHERLAND - 5.24%
Akzo Nobel N.V. (Chemicals-Diversified) 7,350 1,267,260
- -------------------------------------------------------------------------------
CMG PLC (Computers-Software & Services) 35,400 883,407
- -------------------------------------------------------------------------------
Getronics N.V. (Computers-Software & Services) 29,200 930,299
- -------------------------------------------------------------------------------
Koninklijke Ahold N.V. (Retail-Food Chains) 38,000 991,394
- -------------------------------------------------------------------------------
Koninklijke Nutricia Verenigde Bedrijven N.V. (Foods) 15,000 454,960
- -------------------------------------------------------------------------------
Koninklijke Pakhoed N.V. (Shipping) 24,700 712,623
- -------------------------------------------------------------------------------
Oce-Van Der Grinten N.V. (Office Equipment &
Supplies) 4,500 490,469
- -------------------------------------------------------------------------------
Philips Electronics N.V. (Household Furniture &
Appliances) 16,400 983,523
- -------------------------------------------------------------------------------
Randstad Holdings N.V. (Services-Commercial &
Consumer) 13,000 489,187
- -------------------------------------------------------------------------------
Royal Dutch Petroleum Co. (Oil-International
Integrated) 18,000 988,040
- -------------------------------------------------------------------------------
Stork N.V. (Manufacturing-Diversified) 13,000 448,795
- -------------------------------------------------------------------------------
Vendex International N.V. (Retail-General
Merchandise) 20,500 1,131,334
- -------------------------------------------------------------------------------
VNU-Verenigde Nederlandse Uitgeversbedrijven Verenigd
Bezit (Publishing) 32,500 916,825
- -------------------------------------------------------------------------------
Wolters Kluwer N.V. (Specialty Printing) 2,900 374,577
- -------------------------------------------------------------------------------
11,062,693
- -------------------------------------------------------------------------------
NORWAY - 0.63%
Petroleum Geo-Services A.S.A. (Oil-International
Integrated)(a) 21,000 1,322,644
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PHILIPPINES - 0.36%
Metro Pacific Corp. (Manufacturing-Diversified) 4,745,440 $ 131,232
- -------------------------------------------------------------------------------
Philippine Long Distance Telephone Co. (Telephone) 16,660 361,995
- -------------------------------------------------------------------------------
Philippine Long Distance Telephone Co.-ADR
(Telephone) 11,600 261,000
- -------------------------------------------------------------------------------
754,227
- -------------------------------------------------------------------------------
PORTUGAL - 1.69%
Cimpor-Cimentos de Portugal S.A. (Construction-Cement
& Aggregates) 17,650 462,610
- -------------------------------------------------------------------------------
Electricidade de Portugal, S.A.-ADR (Electric
Companies)(a) 13,800 534,750
- -------------------------------------------------------------------------------
Portugal Telecom S.A. (Telephone) 50,000 2,320,021
- -------------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications-Cellular/Wireless)(a) 2,400 255,713
- -------------------------------------------------------------------------------
3,573,094
- -------------------------------------------------------------------------------
SINGAPORE - 0.96%
City Developments Ltd. (Land Development) 155,000 717,295
- -------------------------------------------------------------------------------
DBS Land Ltd. (Land Development) 408,000 624,527
- -------------------------------------------------------------------------------
Overseas Union Bank Ltd. (Banks-Major Regional) 181,200 693,408
- -------------------------------------------------------------------------------
2,035,230
- -------------------------------------------------------------------------------
SPAIN - 2.35%
Banco Bilbao Vizcaya, S.A. (Banks-Major Regional) 42,900 1,388,231
- -------------------------------------------------------------------------------
Endesa S.A. (Electric Companies) 49,200 873,554
- -------------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 83,800 1,102,849
- -------------------------------------------------------------------------------
Telefonica de Espana (Telephone) 56,000 1,598,950
- -------------------------------------------------------------------------------
4,963,584
- -------------------------------------------------------------------------------
SWEDEN - 2.06%
Electrolux A.B. (Household Furniture & Appliances) 15,700 1,089,522
- -------------------------------------------------------------------------------
Hennes & Mauritz A.B.-Class B (Retail-Specialty-
Apparel) 37,000 1,631,003
- -------------------------------------------------------------------------------
Sparbanken Sverige A.B.-Class A (Banks-Major
Regional) 52,000 1,182,131
- -------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 12,000 447,750
- -------------------------------------------------------------------------------
4,350,406
- -------------------------------------------------------------------------------
SWITZERLAND - 4.85%
Ciba Specialty Chemicals A.G. (Chemicals-
Specialty)(a) 11,800 1,404,858
- -------------------------------------------------------------------------------
Clariant A.G. (Chemicals-Specialty) 1,900 1,586,042
- -------------------------------------------------------------------------------
Credit Suisse Group (Banks-Major Regional) 7,700 1,190,694
- -------------------------------------------------------------------------------
Holderbank Financiere Glarus A.G.-Class B
(Construction-Cement & Aggregates) 1,190 970,565
- -------------------------------------------------------------------------------
Nestle S.A. (Foods) 770 1,153,288
- -------------------------------------------------------------------------------
Novartis A.G. (Health Care-Diversified) 1,368 2,218,378
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-64
<PAGE> 136
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SWITZERLAND - (CONTINUED)
Schweizerischer Bankverein (Banks-Major Regional) 3,300 $ 1,025,111
- -------------------------------------------------------------------------------
Zurich Versicherungs-Gesellschaft (Insurance-Multi-
Line) 1,450 690,523
- -------------------------------------------------------------------------------
10,239,459
- -------------------------------------------------------------------------------
TAIWAN - 0.10%
Taiwan Semiconductor Manufacturing Co. Ltd.-ADR
(Electronics-Semiconductors)(a) 12,000 218,250
- -------------------------------------------------------------------------------
UNITED KINGDOM - 16.37%
Airtours PLC (Services-Commercial & Consumer) 45,150 919,486
- -------------------------------------------------------------------------------
Amersham International PLC (Health Care-Drugs-Generic
& Other) 21,000 780,149
- -------------------------------------------------------------------------------
Barclays PLC (Banks-Major Regional) 25,000 664,330
- -------------------------------------------------------------------------------
Blue Circle Industries PLC (Construction-Cement &
Aggregates) 155,000 869,337
- -------------------------------------------------------------------------------
Bodycote International PLC (Chemicals-Specialty) 40,500 600,965
- -------------------------------------------------------------------------------
Bodycote International PLC (Chemicals-Specialty),
Rts. expiring 01/09/98 10,125 66,515
- -------------------------------------------------------------------------------
British Aerospace PLC (Aerospace/Defense) 42,000 1,196,780
- -------------------------------------------------------------------------------
British Petroleum Co. PLC (Oil & Gas-Refining &
Marketing) 140,000 1,839,432
- -------------------------------------------------------------------------------
Cable & Wireless PLC (Telecommunications-
Cellular/Wireless) 117,000 1,028,029
- -------------------------------------------------------------------------------
Compass Group PLC (Services-Commercial & Consumer) 78,000 959,494
- -------------------------------------------------------------------------------
Dixons Group PLC (Retail-Specialty) 107,000 1,073,719
- -------------------------------------------------------------------------------
EMAP PLC (Publishing) 62,500 929,981
- -------------------------------------------------------------------------------
General Electric Co. PLC (Manufacturing-Diversified) 168,100 1,089,132
- -------------------------------------------------------------------------------
GKN PLC (Manufacturing-Diversified) 50,000 1,024,005
- -------------------------------------------------------------------------------
Granada Group PLC (Leisure Time-Products) 43,000 656,776
- -------------------------------------------------------------------------------
Hays PLC (Services-Commercial & Consumer) 104,000 1,386,932
- -------------------------------------------------------------------------------
Kingfisher PLC (Retail-Department Stores) 80,000 1,114,170
- -------------------------------------------------------------------------------
Ladbroke Group PLC (Leisure Time-Products) 365,200 1,583,467
- -------------------------------------------------------------------------------
Lloyds TSB Group PLC (Banks-Major Regional) 57,000 736,742
- -------------------------------------------------------------------------------
Misys PLC (Services-Commercial & Consumer) 25,000 755,481
- -------------------------------------------------------------------------------
Next PLC (Retail-General Merchandise) 97,500 1,108,093
- -------------------------------------------------------------------------------
Pearson PLC (Specialty Printing) 95,000 1,234,144
- -------------------------------------------------------------------------------
Provident Financial PLC (Consumer Finance) 92,800 1,219,281
- -------------------------------------------------------------------------------
Railtrack Group PLC (Shipping) 145,000 2,302,821
- -------------------------------------------------------------------------------
Rentokil Initial PLC (Services-Commercial & Consumer) 274,000 1,192,510
- -------------------------------------------------------------------------------
Royal & Sun Alliance Insurance Group PLC (Insurance-
Multi-Line) 133,000 1,338,992
- -------------------------------------------------------------------------------
Siebe PLC (Electronics-Component/Distributors) 38,000 745,791
- -------------------------------------------------------------------------------
Smiths Industries PLC (Machinery-Diversified) 26,000 362,105
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - (CONTINUED)
Tarmac PLC (Engineering & Construction) 844,500 $ 1,581,140
- ------------------------------------------------------------------------------
Unilever PLC (Foods) 208,000 1,779,782
- ------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications-
Cellular/Wireless) 185,000 1,333,835
- ------------------------------------------------------------------------------
WPP Group PLC (Services-Advertising/Marketing) 240,000 1,068,184
- ------------------------------------------------------------------------------
34,541,600
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests 198,591,423
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT(c)
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.80%(c)
FRANCE - 0.47%
AXA-UAP (Insurance-Multi-Line), Conv. Sr. Deb.,
4.50%, 01/01/99 FRF 3,307,500 986,177
- ------------------------------------------------------------------------------
HONG KONG - 0.13%
New World Infrastructure Ltd. (Services-Commercial
& Consumer), Conv. Bonds, 5.00%, 07/15/01 HKD 280,000 278,600
- ------------------------------------------------------------------------------
JAPAN - 0.20%
Ricoh Co., Ltd. (Office Equipment & Supplies),
Conv. Bonds, 0.35%, 03/31/03 JPY40,000,000 416,328
- ------------------------------------------------------------------------------
Total Foreign Convertible Bonds 1,681,105
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 3.82%(d)
Smith Barney, Inc., 6.75%, 01/02/98(e) $ 8,056,299 8,056,299
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.72% 208,328,827
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.28% 2,693,758
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $211,022,585
==============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income producing security.
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Trustees. The
market value of these securities at December 31 , 1997 was $1,636,293
which represented 0.78% of the Fund's net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(d) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized $395,097,000 U. S. Government obligations, 0%
to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Abbreviations
ADR - American Depositary Receipt HKD - Hong Kong dollar
Conv.- Convertible JPY - Japanese Yen
Deb. - Debentures Pfd. - Preferred
FRF - French Franc Rts. - Rights
GDR - Global Depositary Receipt Sr. - Senior
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-65
<PAGE> 137
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $168,107,886) $208,328,827
- ----------------------------------------------------------------------
Foreign currencies, at market value (cost $1,156,244) 1,138,250
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 125,981
- ----------------------------------------------------------------------
Foreign currency sold 8,691
- ----------------------------------------------------------------------
Investments sold 2,416,689
- ----------------------------------------------------------------------
Dividends and interest 309,815
- ----------------------------------------------------------------------
Organizational costs, net 964
- ----------------------------------------------------------------------
Investment for deferred compensation plan 17,615
- ----------------------------------------------------------------------
Total assets 212,346,832
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 204,927
- ----------------------------------------------------------------------
Foreign currency purchased 667
- ----------------------------------------------------------------------
Investments purchased 918,035
- ----------------------------------------------------------------------
Deferred compensation plan 17,615
- ----------------------------------------------------------------------
Accrued advisory fees 134,159
- ----------------------------------------------------------------------
Accrued administrative services fees 4,547
- ----------------------------------------------------------------------
Accrued directors' fees 1,609
- ----------------------------------------------------------------------
Accrued operating expenses 42,688
- ----------------------------------------------------------------------
Total liabilities 1,324,247
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $211,022,585
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 12,319,556
======================================================================
Net asset value, offering and redemption price per share $17.13
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $404,480 foreign withholding tax) $ 2,884,830
- ----------------------------------------------------------------------------
Interest 366,128
- ----------------------------------------------------------------------------
Total investment income 3,250,958
- ----------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,519,323
- ----------------------------------------------------------------------------
Administrative services fees 59,724
- ----------------------------------------------------------------------------
Custodian fees 226,066
- ----------------------------------------------------------------------------
Directors' fees and expenses 8,453
- ----------------------------------------------------------------------------
Organizational costs 2,892
- ----------------------------------------------------------------------------
Other 62,939
- ----------------------------------------------------------------------------
Total expenses 1,879,397
- ----------------------------------------------------------------------------
Less: Expenses paid indirectly (1,205)
- ----------------------------------------------------------------------------
Net expenses 1,878,192
- ----------------------------------------------------------------------------
Net investment income 1,372,766
- ----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES
AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (523,791)
- ----------------------------------------------------------------------------
Foreign currency transactions (219,642)
- ----------------------------------------------------------------------------
(743,433)
- ----------------------------------------------------------------------------
NET UNREALIZED APPRECIATION (DEPRECIATION) OF:
Investment securities 11,912,209
- ----------------------------------------------------------------------------
Foreign currency transactions (33,863)
- ----------------------------------------------------------------------------
11,878,346
- ----------------------------------------------------------------------------
Net gain on investment securities and foreign currencies 11,134,913
- ----------------------------------------------------------------------------
Net increase in net assets resulting from operations $12,507,679
============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-66
<PAGE> 138
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,372,766 $ 962,870
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment
securities and foreign currency transactions (743,433) 4,388,374
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and foreign currency transactions 11,878,346 17,071,573
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 12,507,679 22,422,817
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (955,397) (377,734)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (3,362,028) --
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 37,094,253 61,436,140
- ------------------------------------------------------------------------------
Net increase in net assets 45,284,507 83,481,223
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 165,738,078 82,256,855
- ------------------------------------------------------------------------------
End of year $211,022,585 $165,738,078
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $170,283,064 $133,188,811
- ------------------------------------------------------------------------------
Undistributed net investment income 1,134,854 937,128
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currency
transactions (580,780) 3,305,038
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currency transactions 40,185,447 28,307,101
- ------------------------------------------------------------------------------
$211,022,585 $165,738,078
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to AIM V.I. International Equity Fund (the "Fund"). The Fund's investment
objective is to seek to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities the issuers of which
are considered by AIM to have strong earnings momentum. Currently, shares of
the Fund are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations either are not readily available or are questionable
are valued at fair value as determined in good faith by or under the
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
AIM V.I. INTERNATIONAL EQUITY FUND
FS-67
<PAGE> 139
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 foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
D. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on an accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997
undistributed net investment income was decreased and undistributed net
realized gain (loss) increased by $219,643 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
E. Federal Income Taxes - 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.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of
the first $250 million of the Fund's average daily net assets, plus 0.70% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services to the Fund.
During the year ended December 31, 1997, AIM was reimbursed $59,724 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,684 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolio trades to brokers who paid a portion of the
Fund's expenses related to pricing services used by the Fund which reduced the
Fund's expenses by $715 during the year ended December 31, 1997. The Fund also
received reductions in custodian fees of $490 under an expense offset
arrangement. The effect of the above arrangements resulted in a reduction of
the Fund's total expenses of $1,205 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1997 was $145,204,122 and $110,775,339, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $48,320,669
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,100,740)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $40,219,929
==========================================================================
</TABLE>
Cost of investments for tax purposes is $168,108,898.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sold 2,963,552 $ 50,938,182 4,432,824 $66,189,679
- ----------------------------------------------------------------------------
Issued as reinvestment of
distributions 257,449 4,317,425 23,877 377,734
- ----------------------------------------------------------------------------
Reacquired (1,031,143) (18,161,354) (347,543) (5,131,273)
- ----------------------------------------------------------------------------
2,189,858 $ 37,094,253 4,109,158 $61,436,140
============================================================================
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
FS-68
<PAGE> 140
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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>
DECEMBER 31, JANUARY 31,
--------------------------------- -------------------
1997 1996 1995 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 16.36 $ 13.66 $ 11.03 $ 12.49 $ 10.00
- --------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.10 0.07 0.07 0.06 --
- --------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 1.03 2.67 2.58 (1.49) 2.49
- --------------------------------------------------------------------------------------------
Total from investment
operations 1.13 2.74 2.65 (1.43) 2.49
- --------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.08) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------
Distributions from net
realized capital gains (0.28) -- -- -- --
- --------------------------------------------------------------------------------------------
Total distributions (0.36) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------
Net asset value, end of
period $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
============================================================================================
Total return(a) 6.94% 20.05% 24.04% (11.48)% 24.90%
============================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $211,023 $165,738 $82,257 $55,019 $23,533
============================================================================================
Ratio of expenses to
average net assets 0.93%(b)(c) 0.96% 1.15%(d) 1.27%(e) 1.98%(d)(e)
============================================================================================
Ratio of net investment
income to average net
assets 0.68%(b) 0.78% 0.75%(d) 0.60%(f) (0.15)%(d)(f)
============================================================================================
Portfolio turnover rate 57% 59% 67% 64% 26%
============================================================================================
Average brokerage
commission rate paid(g) $ 0.0173 $ 0.0209 N/A N/A N/A
============================================================================================
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $202,576,375.
(c) Includes expenses paid indirectly. Excluding expenses paid indirectly, the
ratio of expenses to average net assets would have remained the same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.28% and 3.06% (annualized), for January 1995 and 1994 respectively.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.59% and (1.23)% (annualized), for January 1995 and
1994 respectively.
(g) The average brokerage commission rate paid is the total brokerage
commissions paid on applicable purchases and sales of securities for the
period divided by the total number of related shares purchased and sold,
which is required to be disclosed for fiscal years beginning September 1,
1995 and thereafter.
AIM V.I. INTERNATIONAL EQUITY FUND
FS-69
<PAGE> 141
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Money Market Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1997, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the two years in the
period then ended, the eleven month period ended December 31, 1995, the year
ended January 31, 1995, and the period May 5, 1993 (commencement of
operations) through January 31, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, 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, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
two years in the period then ended, the eleven month period ended December 31,
1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement
of operations), through January 31, 1994, in conformity with generally
accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. MONEY MARKET FUND
FS-70
<PAGE> 142
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
COMMERCIAL PAPER - 53.34%(a)
ASSET-BACKED SECURITIES - 15.35%
Ciesco, L.P.,
5.67%, 02/09/98 $1,000 $ 993,858
- -----------------------------------------------------------------------
Clipper Receivables Corp.,
6.00%, 01/28/98 1,067 1,062,198
- -----------------------------------------------------------------------
Fleet Funding Corp.,
5.83%, 01/30/98 2,900 2,886,380
- -----------------------------------------------------------------------
Preferred Receivables Funding Corp.,
5.64%, 01/06/98 1,075 1,074,158
- -----------------------------------------------------------------------
Sheffield Receivables Corp.,
5.81%, 02/02/98 3,000 2,984,507
- -----------------------------------------------------------------------
9,001,101
- -----------------------------------------------------------------------
AUTOMOBILE - 1.68%
Daimler-Benz North America Corp.,
5.75%, 03/26/98 1,000 986,583
- -----------------------------------------------------------------------
BROADCAST MEDIA - 1.67%
Scripps (E. W.) Co.,
5.74%, 03/12/98 992 980,928
- -----------------------------------------------------------------------
COMPUTER SOFTWARE & SERVICES - 5.10%
International Business Machines Corp.,
6.25%, 01/15/98 3,000 2,992,708
- -----------------------------------------------------------------------
DRUGS - 4.09%
Novartis Finance Corp.,
6.35%, 01/06/98 2,400 2,397,883
- -----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.55%
Hitachi America, Ltd.,
5.95%, 01/29/98 1,500 1,493,058
- -----------------------------------------------------------------------
FINANCE (BUSINESS CREDIT) - 7.71%
General Electric Capital Corp.,
5.70%, 02/27/98 1,000 990,975
- -----------------------------------------------------------------------
5.68%, 03/03/98 1,548 1,533,101
- -----------------------------------------------------------------------
National Rural Utilities Cooperative Finance Corp.,
5.54%, 01/14/98 2,000 1,995,999
- -----------------------------------------------------------------------
4,520,075
- -----------------------------------------------------------------------
FINANCE (MISCELLANEOUS) - 1.70%
USAA Capital Corp.,
6.50%, 01/16/98 1,000 997,292
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
FINANCE (PERSONAL CREDIT) - 2.97%
Associates Corp. of North America,
5.68%, 02/11/98 $1,750 $ 1,738,679
- -----------------------------------------------------------------------
FOOD PROCESSING - 3.39%
Cargill Financial Services Corp.,
5.57%, 02/20/98 2,000 1,984,527
- -----------------------------------------------------------------------
INSURANCE (LIFE & HEALTH) - 1.68%
MetLife Funding Inc.,
5.71%, 03/20/98 1,000 987,628
- -----------------------------------------------------------------------
MACHINERY - 1.70%
Dover Corp.,
6.50%, 01/16/98 1,000 997,292
- -----------------------------------------------------------------------
METAL MINING - 2.04%
RTZ America, Inc.,
5.57%, 01/07/98 1,200 1,198,886
- -----------------------------------------------------------------------
OIL & GAS (INTEGRATED) - 1.71%
Shell Martinez Refining Co.,
5.81%, 03/11/98(b) 1,000 1,000,000
- -----------------------------------------------------------------------
Total Commercial Paper 31,276,640
- -----------------------------------------------------------------------
MASTER NOTE AGREEMENTS - 17.33%(C)
Goldman, Sachs & Co.,
5.6875%, 04/20/98(d) 2,060 2,060,000
- -----------------------------------------------------------------------
Merrill Lynch Mortgage Capital Inc.,
7.05%, 08/17/98(e) 3,000 3,000,000
- -----------------------------------------------------------------------
Morgan (J.P.) Securities, Inc.,
6.82%, 04/06/98(f) 2,100 2,100,000
- -----------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co.,
6.85%, 05/26/98(g) 3,000 3,000,000
- -----------------------------------------------------------------------
Total Master Note Agreements 10,160,000
- -----------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 4.26%
Federal National Mortgage Association,
5.504%, 06/02/99(h) 2,000 2,000,000
- -----------------------------------------------------------------------
Student Loan Marketing Association,
5.619%, 08/20/98(h) 500 499,973
- -----------------------------------------------------------------------
Total U.S. Government Agency Securities 2,499,973
- -----------------------------------------------------------------------
Total Investments, excluding Repurchase Agreements 43,936,613
- -----------------------------------------------------------------------
</TABLE>
AIM V.I. MONEY MARKET FUND
FS-71
<PAGE> 143
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS - 25.15%(i)
Goldman, Sachs & Co.,
6.53%, 01/02/98(j) $4,744 $ 4,744,154
- ----------------------------------------------------------------
Smith Barney, Inc.,
6.75%, 01/02/98(k) 10,000 10,000,000
- ----------------------------------------------------------------
Total Repurchase Agreements 14,744,154
- ----------------------------------------------------------------
TOTAL INVESTMENTS - 100.08% 58,680,767(/1/)
- ----------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.08%) (46,146)
- ----------------------------------------------------------------
NET ASSETS - 100.00% $58,634,621
================================================================
</TABLE>
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) Trust certificates representing an interest in a trust (comprised of
eligible debt obligations) entitling the Fund to receive interest. The Fund
has the right, upon seven calendar days' notice to the trustee, to put its
certificates to the trust at par value plus accrued interest. Because trust
certificates involve a trust and a third party put feature, they involve
complexities and potential risks that may not be present where the debt
obligation is owned directly. Rate shown is the rate in effect on 12/31/97.
(c) The investments in master note agreements are through participation in
joint accounts with other mutual funds, private accounts, and certain
nonregistered investment companies managed by the investment advisor or its
affiliates.
(d) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 7 business days' notice to the issuer. Interest
rates on master notes are redetermined periodically. Rate shown is the rate
in effect on 12/31/97.
(e) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 2 days' notice to the issuer. Interest rates on
master notes are redetermined periodically. Rate shown is the rate in
effect on 12/31/97.
(f) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 7 days' notice to the issuer. Interest rates on
master notes are redetermined periodically. Rate shown is the rate in
effect on 12/31/97.
(g) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon 3 business days' written notice to the issuer.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on 12/31/97.
(h) Interest rates are redetermined weekly. Rate shown is the rate in effect on
12/31/97.
(i) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value as being 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(j) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$900,326,500. Collateralized by $856,643,000 U.S. Treasury obligations, 0%
to 14% due 01/08/98 to 08/15/23 with an aggregate market value at 12/31/97
of $918,902,583.
(k) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
(l) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
FS-72
<PAGE> 144
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at
value (amortized cost) $ 43,936,613
- ----------------------------------------------------------------------
Repurchase agreements 14,744,154
- ----------------------------------------------------------------------
Interest receivable 69,211
- ----------------------------------------------------------------------
Organizational costs, net 964
- ----------------------------------------------------------------------
Investment for deferred compensation plan 17,151
- ----------------------------------------------------------------------
Other assets 11,335
- ----------------------------------------------------------------------
Total assets 58,779,428
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 89,207
- ----------------------------------------------------------------------
Deferred compensation plan 17,151
- ----------------------------------------------------------------------
Accrued advisory fees 20,245
- ----------------------------------------------------------------------
Accrued administrative service fees 2,858
- ----------------------------------------------------------------------
Accrued directors' fees 1,843
- ----------------------------------------------------------------------
Accrued operating expenses 13,503
- ----------------------------------------------------------------------
Total liabilities 144,807
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 58,634,621
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 58,634,564
======================================================================
Net asset value, offering and redemption price per share $ 1.00
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $3,562,612
- -----------------------------------------------------------------
EXPENSES:
Advisory fees 254,546
- -----------------------------------------------------------------
Administrative service fees 38,289
- -----------------------------------------------------------------
Custodian fees 25,713
- -----------------------------------------------------------------
Directors' fees and expenses 7,904
- -----------------------------------------------------------------
Legal fees 18,787
- -----------------------------------------------------------------
Organizational costs 2,892
- -----------------------------------------------------------------
Other 24,587
- -----------------------------------------------------------------
Total expenses 372,718
- -----------------------------------------------------------------
Less: Expenses paid indirectly (160)
- -----------------------------------------------------------------
Net expenses 372,558
- -----------------------------------------------------------------
Net investment income 3,190,054
- -----------------------------------------------------------------
Net increase in net assets resulting from operations $3,190,054
=================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
FS-73
<PAGE> 145
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,190,054 $ 3,207,475
- ----------------------------------------------------------------------------
Net realized gain on sales of investment
securities -- 16,294
- ----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,190,054 3,223,769
- ----------------------------------------------------------------------------
Distributions to shareholders from net investment
income (3,190,054) (3,207,475)
- ----------------------------------------------------------------------------
Net increase (decrease) from capital stock
transactions (4,894,872) (1,992,555)
- ----------------------------------------------------------------------------
Net increase (decrease) in net assets (4,894,872) (1,976,261)
- ----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 63,529,493 65,505,754
- ----------------------------------------------------------------------------
End of year $58,634,621 $63,529,493
============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $58,634,564 $63,529,436
- ----------------------------------------------------------------------------
Undistributed net realized gain on sales of
investment securities 57 57
- ----------------------------------------------------------------------------
$58,634,621 $63,529,493
============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to the AIM V.I. Money Market Fund (the "Fund"). The Fund's investment
objective is to seek to provide as high a level of current income as is
consistent with the preservation of capital and liquidity. Currently, shares
of the Fund are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - The Fund's securities are valued on the basis of
amortized cost which approximates market value. This method values a
security at its cost on the date of purchase and thereafter, assumes a
constant amortization to maturity of any discount or premiums.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is recorded as earned from settlement date and is
recorded on the accrual basis. Distributions to shareholders are declared and
paid daily.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements. The Fund has a
capital loss carryforward (which may be carried forward to offset future
taxable gains, if any) of $846 which expires, if not previously utilized,
in the year 2003. The Fund cannot distribute capital gains to shareholders
until the tax loss carryforwards have been utilized.
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.
AIM V.I. MONEY MARKET FUND
FS-74
<PAGE> 146
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 year ended December 31, 1997, AIM was reimbursed $38,289 for such
services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$4,396 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel to
the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $160 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of the
Fund's total expenses of $160 during the year ended December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold 88,948,357 $ 88,948,357 76,145,573 $ 76,145,573
- ---------------------- ----------- ------------ ----------- ------------
Issued as reinvestment
of distributions 3,190,054 3,190,054 3,207,475 3,207,475
- ---------------------- ----------- ------------ ----------- ------------
Reacquired (97,033,283) (97,033,283) (81,345,603) (81,345,603)
- ---------------------- ----------- ------------ ----------- ------------
(4,894,872) $ (4,894,872) (1,992,555) $ (1,992,555)
=========== ============ =========== ============
</TABLE>
NOTE 6 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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>
DECEMBER 31, JANUARY 31,
------------------------------- -------------------
1997 1996 1995 1995 1994
<S> <C> <C> <C> <C> <C>
------- ------- ------- ------- -------
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.05 0.05 0.05 0.04 0.02
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.05) (0.05) (0.05) (0.04) (0.02)
- --------------------------------------------------------------------------------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================================================================
Total return 5.14% 4.97% 5.69%(a) 3.98% 2.27%(a)
================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $58,635 $63,529 $65,506 $31,017 $13,891
================================================================================
Ratio of expenses to
average net assets 0.59%(b)(c) 0.55% 0.53%(a) 0.63%(d) 0.95%(a)(e)
================================================================================
Ratio of net investment
income to average net
assets 5.01%(b) 4.84% 5.40%(a) 4.14%(d) 2.29%(a)(e)
================================================================================
</TABLE>
(a) Annualized.
(b) Ratios are based on average net assets of $63,641,415.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) After fee waivers and/or expense reimbursements. Prior to fee waivers
and/or expense reimbursements the ratios of expenses and net investment
income to average net assets were 0.70% and 4.07%, respectively.
(e) After fee waivers and/or expense reimbursements. Prior to fee waivers
and/or expense reimbursements the annualized ratios of expenses and net
investment income to average net assets were 1.53% and 1.70%, respectively.
AIM V.I. MONEY MARKET FUND
FS-75
<PAGE> 147
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Value Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the two years in the period then ended,
the eleven month period ended December 31, 1995, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1997, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Value Fund, as of December 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the two
years in the period then ended, the eleven month period ended December 31,
1995, the year ended January 31, 1995 and the period May 5, 1993 (commencement
of operations) through January 31, 1994 in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 4, 1998
AIM V.I. VALUE FUND
FS-76
<PAGE> 148
SCHEDULE OF INVESTMENTS
December 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 65.86%
AEROSPACE/DEFENSE - 0.69%
Boeing Co. (The) 33,000 $ 1,614,937
- -----------------------------------------------------------
Lockheed Martin Corp. 1,800 177,300
- -----------------------------------------------------------
Orbital Sciences Corp.(a) 20,100 597,975
- -----------------------------------------------------------
Precision Castparts Corp. 38,800 2,340,125
- -----------------------------------------------------------
4,730,337
- -----------------------------------------------------------
AIR FREIGHT - 0.26%
Airborne Freight Corp. 18,200 1,130,675
- -----------------------------------------------------------
Federal Express Corp.(a) 11,400 696,112
- -----------------------------------------------------------
1,826,787
- -----------------------------------------------------------
AIRLINES - 0.66%
Continental Airlines, Inc.(a) 94,000 4,523,750
- -----------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.86%
Banc One Corp. 103,000 5,594,185
- -----------------------------------------------------------
Wachovia Corp. 4,600 373,175
- -----------------------------------------------------------
5,967,360
- -----------------------------------------------------------
BANKS (MONEY CENTER) - 5.00%
BankAmerica Corp.(b) 166,000 12,118,000
- -----------------------------------------------------------
Chase Manhattan Corp. 92,600 10,139,700
- -----------------------------------------------------------
Citicorp(b) 97,000 12,264,438
- -----------------------------------------------------------
34,522,138
- -----------------------------------------------------------
BROADCASTING (TELEVISION, RADIO &
CABLE) - 0.33%
US West Media Group(a) 78,300 2,260,912
- -----------------------------------------------------------
BUILDING MATERIALS - 0.18%
Masco Corp. 25,000 1,271,875
- -----------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.39%
Cytec Industries Inc.(a) 58,000 2,722,375
- -----------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.30%
Comverse Technology, Inc.(a) 54,000 2,106,000
- -----------------------------------------------------------
COMPUTERS (HARDWARE) - 1.71%
Compaq Computer Corp. 52,000 2,934,750
- -----------------------------------------------------------
Stratus Computer, Inc.(a) 37,000 1,399,063
- -----------------------------------------------------------
Sun Microsystems, Inc.(a) 187,000 7,456,625
- -----------------------------------------------------------
11,790,438
- -----------------------------------------------------------
COMPUTERS (NETWORKING) - 0.31%
Bay Networks, Inc.(a) 84,000 2,147,250
- -----------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.95%
Adaptec, Inc.(a) 50,000 1,856,250
- -----------------------------------------------------------
Quantum Corp.(a)(b) 234,000 4,694,625
- -----------------------------------------------------------
6,550,875
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (SOFTWARE & SERVICES) - 3.27%
America Online, Inc.(a) 13,000 $ 1,159,438
- -----------------------------------------------------------------
American Management Systems, Inc.(a) 41,000 799,500
- -----------------------------------------------------------------
Autodesk, Inc. 10,000 370,000
- -----------------------------------------------------------------
Computer Associates International, Inc. 230,500 12,187,687
- -----------------------------------------------------------------
Network Associates, Inc.(a) 42,168 2,229,622
- -----------------------------------------------------------------
Sybase, Inc.(a) 150,000 1,996,875
- -----------------------------------------------------------------
Unisys Corp.(a) 275,000 3,815,625
- -----------------------------------------------------------------
22,558,747
- -----------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.30%
American Greetings Corp.-Class A 53,000 2,073,625
- -----------------------------------------------------------------
CONSUMER FINANCE - 1.19%
Household International, Inc. 24,500 3,125,281
- -----------------------------------------------------------------
MBNA Corp. 89,000 2,430,812
- -----------------------------------------------------------------
SLM Holding Corp. 19,000 2,643,375
- -----------------------------------------------------------------
8,199,468
- -----------------------------------------------------------------
ELECTRIC COMPANIES - 0.34%
Allegheny Energy, Inc. 37,200 1,209,000
- -----------------------------------------------------------------
Carolina Power & Light Co. 13,700 581,394
- -----------------------------------------------------------------
Wisconsin Energy Corp. 18,700 537,625
- -----------------------------------------------------------------
2,328,019
- -----------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.82%
American Power Conversion Corp.(a) 125,000 2,953,124
- -----------------------------------------------------------------
AVX Corp. 9,700 178,844
- -----------------------------------------------------------------
SCI Systems, Inc.(a) 45,000 1,960,313
- -----------------------------------------------------------------
Symbol Technologies, Inc. 14,800 558,700
- -----------------------------------------------------------------
5,650,981
- -----------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.12%
Waters Corp.(a) 21,900 823,988
- -----------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.67%
Maxim Integrated Products, Inc.(a) 65,000 2,242,500
- -----------------------------------------------------------------
Microchip Technology, Inc.(a) 37,000 1,110,000
- -----------------------------------------------------------------
National Semiconductor Corp.(a) 50,000 1,296,875
- -----------------------------------------------------------------
4,649,375
- -----------------------------------------------------------------
ENTERTAINMENT - 0.54%
Viacom, Inc.-Class B(a) 89,700 3,716,944
- -----------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 4.99%
Ambac Financial Group, Inc. 63,000 2,898,000
- -----------------------------------------------------------------
Fannie Mae 207,000 11,811,937
- -----------------------------------------------------------------
Freddie Mac 254,000 10,652,125
- -----------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-77
<PAGE> 149
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED) - (CONTINUED)
MBIA, Inc. 57,400 $ 3,835,038
- ---------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 89,000 5,262,125
- ---------------------------------------------------------------------
34,459,225
- ---------------------------------------------------------------------
FOODS - 0.19%
Interstate Bakeries Corp. 34,400 1,285,700
- ---------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 0.75%
Bristol-Myers Squibb Co. 55,000 5,204,375
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.90%
ICN Pharmaceuticals, Inc. 85,060 4,151,991
- ---------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 64,200 2,082,488
- ---------------------------------------------------------------------
6,234,479
- ---------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.67%
Quorum Health Group, Inc.(a) 138,050 3,606,556
- ---------------------------------------------------------------------
Tenet Healthcare Corp.(a)(b) 31,000 1,026,875
- ---------------------------------------------------------------------
4,633,431
- ---------------------------------------------------------------------
HEALTH CARE (LONG-TERM CARE) - 0.46%
Genesis Health Ventures, Inc.(a) 62,500 1,648,438
- ---------------------------------------------------------------------
Health Care and Retirement Corp.(a) 38,400 1,545,600
- ---------------------------------------------------------------------
3,194,038
- ---------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 2.12%
MedPartners, Inc.(a) 462,030 10,337,921
- ---------------------------------------------------------------------
PhyCor, Inc.(a) 160,000 4,320,000
- ---------------------------------------------------------------------
14,657,921
- ---------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.61%
Allegiance Corp. 26,500 939,094
- ---------------------------------------------------------------------
Baxter International Inc. 91,000 4,589,813
- ---------------------------------------------------------------------
Becton, Dickinson & Co. 42,000 2,100,000
- ---------------------------------------------------------------------
Sybron International Corp.(a) 74,800 3,510,924
- ---------------------------------------------------------------------
11,139,831
- ---------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.25%
FPA Medical Management, Inc.(a) 10,500 195,563
- ---------------------------------------------------------------------
Omnicare, Inc. 50,000 1,550,000
- ---------------------------------------------------------------------
1,745,563
- ---------------------------------------------------------------------
HOMEBUILDING - 0.08%
Clayton Homes, Inc. 30,000 540,000
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.45%
Colgate-Palmolive Co. 42,000 3,087,000
- ---------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.42%
Conseco, Inc. 122,000 5,543,375
- ---------------------------------------------------------------------
Equitable Companies, Inc. 21,000 1,044,750
- ---------------------------------------------------------------------
Provident Companies, Inc. 84,000 3,244,500
- ---------------------------------------------------------------------
9,832,625
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
INSURANCE (MULTI-LINE) - 5.11%
Ace, Ltd. 68,000 $ 6,562,000
- ----------------------------------------------------------------------
American International Group, Inc.(b) 165,000 17,943,750
- ----------------------------------------------------------------------
CIGNA Corp. 8,400 1,453,725
- ----------------------------------------------------------------------
Hartford Financial Services Group Inc. (The) 67,000 6,268,688
- ----------------------------------------------------------------------
Travelers Group, Inc. 57,000 3,070,875
- ----------------------------------------------------------------------
35,299,038
- ----------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 5.58%
Allstate Corp. 274,100 24,908,838
- ----------------------------------------------------------------------
Chubb Corp. 12,000 907,500
- ----------------------------------------------------------------------
Exel Ltd. 110,000 6,971,250
- ----------------------------------------------------------------------
Progressive Corp. 32,000 3,836,000
- ----------------------------------------------------------------------
Transatlantic Holdings, Inc. 27,050 1,934,075
- ----------------------------------------------------------------------
38,557,663
- ----------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.10%
Merrill Lynch & Co., Inc. 104,000 7,585,500
- ----------------------------------------------------------------------
LODGING (HOTELS) - 2.06%
Carnival Corp.-Class A 150,000 8,306,250
- ----------------------------------------------------------------------
Host Marriott Corp.(a) 34,000 667,250
- ----------------------------------------------------------------------
Promus Hotel Corp.(a) 58,100 2,440,200
- ----------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 52,100 2,777,581
- ----------------------------------------------------------------------
14,191,281
- ----------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.63%
Eaton Corp. 17,800 1,588,650
- ----------------------------------------------------------------------
Hillenbrand Industries, Inc. 22,000 1,126,125
- ----------------------------------------------------------------------
Tyco International Ltd. 36,200 1,631,263
- ----------------------------------------------------------------------
4,346,038
- ----------------------------------------------------------------------
NATURAL GAS - 1.00%
El Paso Natural Gas Co. 71,500 4,754,750
- ----------------------------------------------------------------------
Williams Companies, Inc. (The) 76,000 2,156,500
- ----------------------------------------------------------------------
6,911,250
- ----------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.14%
Wallace Computer Services, Inc. 25,400 987,425
- ----------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.80%
Baker Hughes, Inc. 26,000 1,134,250
- ----------------------------------------------------------------------
BJ Services Co.(a) 30,000 2,158,125
- ----------------------------------------------------------------------
Cooper Cameron Corp.(a) 20,000 1,220,000
- ----------------------------------------------------------------------
Noble Drilling Corp.(a) 32,000 980,000
- ----------------------------------------------------------------------
5,492,375
- ----------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.52%
Tosco Corp. 95,280 3,602,775
- ----------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 1.19%
Xerox Corp. 111,000 8,193,188
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-78
<PAGE> 150
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING - 0.04%
Meredith Corp. 7,100 $ 253,381
- --------------------------------------------------------------------
RAILROADS - 0.25%
Kansas City Southern Industries, Inc. 55,000 1,746,250
- --------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 0.30%
Cali Realty Corp. 50,000 2,050,000
- --------------------------------------------------------------------
RESTAURANTS - 0.36%
Cracker Barrel Old Country Store, Inc. 61,800 2,062,575
- --------------------------------------------------------------------
Papa John's International, Inc.(a) 11,700 408,038
- --------------------------------------------------------------------
2,470,613
- --------------------------------------------------------------------
RETAIL (COMPUTER & ELECTRONICS) - 0.43%
CompUSA, Inc.(a) 39,000 1,209,000
- --------------------------------------------------------------------
Ingram Micro, Inc.-Class A(a) 54,000 1,572,750
- --------------------------------------------------------------------
Tech Data Corp.(a)(b) 5,200 202,150
- --------------------------------------------------------------------
2,983,900
- --------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.84%
Kroger Co.(a) 72,500 2,677,969
- --------------------------------------------------------------------
Safeway, Inc.(a) 49,900 3,156,175
- --------------------------------------------------------------------
5,834,144
- --------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.43%
Dayton-Hudson Corp. 44,000 2,970,000
- --------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.50%
Corporate Express, Inc.(a) 270,000 3,476,250
- --------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.86%
Charter One Financial, Inc. 19,950 1,259,344
- --------------------------------------------------------------------
Washington Mutual, Inc. 72,820 4,646,826
- --------------------------------------------------------------------
5,906,170
- --------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.89%
Cendant Corp.(a) 50,465 1,734,738
- --------------------------------------------------------------------
Service Corp. International 170,000 6,279,375
- --------------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 108,000 5,035,500
- --------------------------------------------------------------------
13,049,613
- --------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.15%
National Data Corp. 29,000 1,047,625
- --------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.31%
AccuStaff, Inc.(a) 93,000 2,139,000
- --------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.17%
Nextel Communications, Inc.(a) 46,200 1,201,200
- --------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 6.36%
AT&T Corp.(b) 69,700 4,269,125
- --------------------------------------------------------------------
LCI International, Inc.(a) 73,800 2,269,350
- --------------------------------------------------------------------
MCI Communications Corp. 315,000 13,485,937
- --------------------------------------------------------------------
Sprint Corp. 48,100 2,819,862
- --------------------------------------------------------------------
WorldCom, Inc.(a) 698,019 21,115,075
- --------------------------------------------------------------------
43,959,349
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TOBACCO-1.57%
Philip Morris Companies, Inc.(b) 240,000 $ 10,875,000
- -------------------------------------------------------------------------------
WASTE MANAGEMENT - 0.49%
USA Waste Services, Inc.(a) 86,000 3,375,500
- -------------------------------------------------------------------------------
Total Domestic Common Stocks 454,939,960
- -------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 11.79%
BRAZIL - 0.34%
Uniao de Bancos Brasileiros S.A.-GDR (Banks-
Regional)(a) 73,000 2,349,688
- -------------------------------------------------------------------------------
CANADA - 4.56%
Bank of Montreal (Banks-Money Center) 42,000 1,861,866
- -------------------------------------------------------------------------------
Canadian National Railway Co.-ADR (Railroads) 35,000 1,653,750
- -------------------------------------------------------------------------------
Philip Services Corp.-ADR (Waste Management)(a) 113,000 1,624,375
- -------------------------------------------------------------------------------
Royal Bank of Canada (Banks-Major Regional) 498,200 26,355,915
- -------------------------------------------------------------------------------
31,495,906
- -------------------------------------------------------------------------------
DENMARK-0.27%
Novo Nordisk A/S (Health Care-Drugs-Generic & Other) 13,000 1,859,338
- -------------------------------------------------------------------------------
FINLAND - 0.73%
Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 72,000 5,040,000
- -------------------------------------------------------------------------------
ITALY - 1.11%
Credito Italiano S.p.A. (Banks-Major Regional) 1,200,000 3,711,928
- -------------------------------------------------------------------------------
Istituto Mobiliare Italiano S.p.A. (Banks-Major
Regional) 185,000 2,193,332
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 280,083 1,791,645
- -------------------------------------------------------------------------------
7,696,905
- -------------------------------------------------------------------------------
NETHERLANDS - 0.29%
Akzo Nobel N.V. (Chemicals-Diversified) 11,500 1,982,788
- -------------------------------------------------------------------------------
PHILIPPINES - 0.01%
Metro Pacific Corp. (Manufacturing-Diversified) 1,145,130 31,668
- -------------------------------------------------------------------------------
PORTUGAL - 0.07%
Portugal Telecom S.A. (Telephone) 10,700 496,485
- -------------------------------------------------------------------------------
SPAIN - 0.14%
Endesa S.A. (Electric Companies) 21,400 379,961
- -------------------------------------------------------------------------------
Telefonica de Espana (Telephone) 19,900 568,198
- -------------------------------------------------------------------------------
948,159
- -------------------------------------------------------------------------------
SWEDEN - 1.27%
Nordbanken Holding AB (Banks-Major Regional) 665,000 3,760,564
- -------------------------------------------------------------------------------
Sparbanken Sverige A.B.-Class A (Banks-Major
Regional) 189,150 4,300,000
- -------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 20,000 746,250
- -------------------------------------------------------------------------------
8,806,814
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
FS-79
<PAGE> 151
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SWITZERLAND - 0.59%
Novartis A.G. (Health Care-Diversified) 2,520 $ 4,086,486
- ------------------------------------------------------------------------------
UNITED KINGDOM - 2.41%
Danka Business Systems PLC-ADR (Office Equipment &
Supplies) 64,700 1,031,156
- ------------------------------------------------------------------------------
Ladbroke Group PLC (Leisure Time-Products) 250,000 1,083,951
- ------------------------------------------------------------------------------
Railtrack Group PLC (Shipping) 142,900 2,269,470
- ------------------------------------------------------------------------------
SmithKline Beecham PLC-ADR (Health Care-Drugs-Major
Pharmaceutical)(b) 237,100 12,195,831
- ------------------------------------------------------------------------------
Standard Chartered PLC (Banks-Major Regional) 9,666 103,190
- ------------------------------------------------------------------------------
16,683,598
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other
Equity Interests 81,477,835
- ------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 0.38%
HEALTH CARE (MANAGED CARE) - 0.14%
Medpartners Inc. - $1.44 Conv. Pfd. 43,000 946,000
- ------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.08%
Conseco Inc.-$4.278 Conv. PRIDES 3,600 561,600
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.16%
WorldCom, Inc.-$2.68 Conv. Pfd. 10,400 1,092,000
- ------------------------------------------------------------------------------
Total Convertible Preferred Stocks 2,599,600
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. TREASURY SECURITIES - 0.94%
U.S. TREASURY BILLS(c) - 0.94%
5.31%, 01/08/98 6,500,000 6,497,985
- ------------------------------------------------------------------------------
Total Investments, excluding repurchase agreements 545,515,380
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 24.67%(d)
SBC Warburg, Inc.
6.55%, 01/02/98(e) 68,385,924 68,385,924
- ------------------------------------------------------------------------------
Smith Barney, Inc.
6.75%, 01/02/98(f) 102,063,243 102,063,243
- ------------------------------------------------------------------------------
Total Repurchase Agreements 170,449,167
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 103.64% 715,964,547
==============================================================================
LIABILITIES LESS OTHER ASSETS - (3.64%) (25,123,054)
==============================================================================
NET ASSETS - 100.00% $690,841,493
==============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) 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) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value as being 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$500,181,944. Collateralized by $601,835,000 U.S. Government obligations,
0% to 10.75% due 05/21/98 to 08/15/23 with an aggregate market value at
12/31/97 of $510,077,411.
(f) Joint repurchase agreement entered into 12/31/97 with a maturing value of
$400,150,000. Collateralized by $395,097,000 U.S. Government obligations,
0% to 13.875% due 01/07/98 to 12/15/43 with an aggregate market value at
12/31/97 of $408,000,323.
Investment Abbreviations:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
Conv. - Convertible
Pfd. - Preferred
PRIDES - Preferred Redemption Increase Dividend Equity Security
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-80
<PAGE> 152
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements at market
value (cost $444,423,441) $545,515,380
- ----------------------------------------------------------------------
Repurchase agreements (cost $170,449,167) 170,449,167
- ----------------------------------------------------------------------
Cash 21,147
- ----------------------------------------------------------------------
Foreign currencies, at market value (cost $401,576) 395,713
- ----------------------------------------------------------------------
Receivables for:
Investments sold 3,513,484
- ----------------------------------------------------------------------
Capital stock sold 896,072
- ----------------------------------------------------------------------
Dividends and interest 645,292
- ----------------------------------------------------------------------
Options written 15,614
- ----------------------------------------------------------------------
Investment for deferred compensation plan 19,336
- ----------------------------------------------------------------------
Organizational costs, net 964
- ----------------------------------------------------------------------
Other assets 21,828
- ----------------------------------------------------------------------
Total assets 721,493,997
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 29,455,924
- ----------------------------------------------------------------------
Capital stock reacquired 2,277
- ----------------------------------------------------------------------
Options written 719,781
- ----------------------------------------------------------------------
Deferred compensation 19,336
- ----------------------------------------------------------------------
Accrued advisory fees 354,260
- ----------------------------------------------------------------------
Accrued directors' fees 2,624
- ----------------------------------------------------------------------
Accrued administrative service fees 4,212
- ----------------------------------------------------------------------
Accrued operating expenses 94,090
- ----------------------------------------------------------------------
Total liabilities 30,652,504
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $690,841,493
======================================================================
CAPITAL SHARES, $.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 33,161,794
======================================================================
Net asset value, offering and redemption price per share $20.83
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31 , 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $195,995 foreign withholding tax) $ 6,123,798
- --------------------------------------------------------------------------
Interest 3,138,907
- --------------------------------------------------------------------------
Total investment income 9,262,705
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,303,799
- --------------------------------------------------------------------------
Administrative service fees 53,632
- --------------------------------------------------------------------------
Custodian fees 174,624
- --------------------------------------------------------------------------
Directors' fees and expenses 10,946
- --------------------------------------------------------------------------
Organizational costs 2,892
- --------------------------------------------------------------------------
Other 141,677
- --------------------------------------------------------------------------
Total expenses 3,687,570
- --------------------------------------------------------------------------
Less: Expenses paid indirectly (3,824)
- --------------------------------------------------------------------------
Net expenses 3,683,746
- --------------------------------------------------------------------------
Net investment income 5,578,959
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 46,384,362
- --------------------------------------------------------------------------
Foreign currencies 10,509
- --------------------------------------------------------------------------
Option contracts 1,476,233
- --------------------------------------------------------------------------
47,871,104
- --------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 51,082,762
- --------------------------------------------------------------------------
Foreign currencies 33,204
- --------------------------------------------------------------------------
Option contracts 370,110
- --------------------------------------------------------------------------
51,486,076
- --------------------------------------------------------------------------
Net gain on investment securities, foreign currencies and
option contracts 99,357,180
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $104,936,139
==========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
FS-81
<PAGE> 153
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,578,959 $ 6,092,474
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and option contracts 47,871,104 19,315,881
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies and option
contracts 51,486,076 19,921,129
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 104,936,139 45,329,484
- ------------------------------------------------------------------------------
Distributions to shareholders from net investment
income (6,026,082) (1,864,217)
- ------------------------------------------------------------------------------
Distributions to shareholders from realized
capital gains (18,500,854) (18,073,097)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 240,697,144 87,131,189
- ------------------------------------------------------------------------------
Net increase in net assets 321,106,347 112,523,359
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 369,735,146 257,211,787
- ------------------------------------------------------------------------------
End of year $690,841,493 $369,735,146
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $536,384,006 $295,686,862
- ------------------------------------------------------------------------------
Undistributed net investment income 5,579,627 6,016,241
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
option contracts 47,575,497 18,215,756
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and option contracts 101,302,363 49,816,287
- ------------------------------------------------------------------------------
$690,841,493 $369,735,146
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of 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. Information presented in these financial statements pertains only
to the AIM V.I. Value Fund (the "Fund"). The Fund's investment objective is to
achieve long-term growth of capital by investing primarily in equity securities
judged by AIM to be undervalued relative to the current or projected earnings
of the companies issuing the securities or relative to current market values of
assets owned by the companies issuing the securities or relative to the equity
market generally. Income is a secondary objective. Currently, shares of the
Fund are sold only to insurance company separate accounts to fund the benefits
of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date, or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations are either not readily available or are questionable
are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by
the Board of Directors. Short-term obligations having 60 days or less to
maturity are valued at
AIM V.I. VALUE FUND
FS-82
<PAGE> 154
amortized cost which approximates market value. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange
which will not be reflected in the computation of the Fund's net asset value.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as
determined in good faith by or under the supervision of the Board of
Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1997,
undistributed net investment income was increased and undistributed net
realized gains reduced by $10,509 in order to comply with the requirements
of the American Institute of Certified Public Accountants Statement of
Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. 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.
G. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a currency contract for
the amount of a purchase or sale of a security denominated in a foreign
currency in order to "lock-in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. 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 "market-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I
M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to
AIM V.I. VALUE FUND
FS-83
<PAGE> 155
reimburse certain administrative costs incurred in providing accounting
services to the Fund. During the year ended December 31, 1997, AIM was
reimbursed $53,632 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1997, the Fund incurred legal fees of
$5,309 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
AIM has directed certain portfolios trades to brokers who paid a portion of
the Fund's expenses related to pricing services used by the Fund which reduced
the Fund's expenses by $2,218 during the year ended December 31, 1997. The
Fund also received reductions in custodian fees of $1,606 under an expense
offset arrangement. The effect of the above arrangements resulted in a
reduction of the Fund's total expenses of $3,824 during the year ended
December 31, 1997.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest a director's
fees, if so elected by such director, in mutual fund shares in accordance with
a deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1997 was
$715,432,710 and $593,497,504, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $109,556,705
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (10,333,119)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 99,223,586
===========================================================================
</TABLE>
Cost of investments for tax purposes is $446,291,794.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Sold 12,245,239 $244,753,656 5,143,694 $86,219,671
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 1,188,320 24,526,936 1,179,025 19,937,315
- -----------------------------------------------------------------------------
Reacquired (1,424,104) (28,583,448) (1,140,219) (19,025,797)
- -----------------------------------------------------------------------------
12,009,455 $240,697,144 5,182,500 $87,131,189
=============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
<S> <C> <C>
Beginning of year 3,487 $1,119,905
Written 7,780 3,228,715
Closed (1,470) (675,031)
Exercised (3,000) (1,220,728)
Expired (4,695) (1,511,273)
------ ----------
End of year 2,102 $ 941,588
====== ==========
</TABLE>
Open call options written at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM DECEMBER 31, 1997 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
----- -------- ------ --------- -------- ----------------- --------------
<S> <C> <C> <C> <C> <C> <C>
AT&T Corp. Apr.98 60 200 $119,898 $103,750 $ 16,148
AT&T Corp. Apr.98 65 100 36,761 31,250 5,511
American International
Group, Inc. Feb.98 100 250 161,495 262,500 (101,005)
BankAmerica Corp. Apr.98 80 150 84,397 45,000 39,397
Citicorp Apr.98 135 250 255,836 168,750 87,087
Philip Morris Companies,
Inc. Jan.98 45 250 39,874 27,344 12,530
Quantum Corp. Feb.98 27.5 428 137,811 16,050 121,761
SmithKline Beecham PLC Jan.98 50 200 60,648 44,375 16,273
Tech Data Corp. Jan.98 45 24 4,978 450 4,528
Tenet Healthcare Corp. Feb.98 35 250 39,890 20,312 19,577
----- -------- -------- ---------
2,102 $941,588 $719,781 $ 221,807
===== ======== ======== =========
</TABLE>
AIM V.I. VALUE FUND
FS-84
<PAGE> 156
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the two-year period ended December 31, 1997, 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>
DECEMBER 31, JANUARY 31,
---------------------------------- ------------------
1997 1996 1995 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.48 $ 16.11 $ 11.83 $ 12.17 $ 10.00
- ------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.08 0.30 0.11 0.10 0.02
- ------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 4.05 2.09 4.18 (0.35) 2.17
- ------------------------------------------------------------------------------------
Total from investment
operations 4.13 2.39 4.29 (0.25) 2.19
- ------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.19) (0.10) (0.01) (0.09) (0.02)
- ------------------------------------------------------------------------------------
Distributions from
realized capital gains (0.59) (0.92) -- -- --
- ------------------------------------------------------------------------------------
Total distributions (0.78) (1.02) (0.01) (0.09) (0.02)
- ------------------------------------------------------------------------------------
Net asset value, end of
period $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
====================================================================================
Total return(a) 23.69% 15.02% 36.25% (2.03)% 21.94%
====================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $690,841 $369,735 $257,212 $109,257 $38,255
====================================================================================
Ratio of expenses to
average net assets 0.70%(b)(c) 0.73% 0.75%(d) 0.82% 1.00%(d)(e)
====================================================================================
Ratio of net investment
income to average net
assets 1.05%(b) 2.00% 1.11%(d) 1.17% 0.51%(d)(e)
====================================================================================
Portfolio turnover rate 127% 129% 145% 143% 87%
====================================================================================
Average brokerage
commission rate paid(f) $ 0.0487 $ 0.0429 N/A N/A N/A
====================================================================================
</TABLE>
(a) Total returns for periods less than one year are not annualized.
(b) Ratios are based on average net assets of $529,874,605.
(c) Ratio includes expenses paid indirectly. Excluding expenses paid
indirectly, the ratio of expenses to average net assets would have been the
same.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Annualized ratios of
expenses and net investment income to average net assets prior to fee
waivers and/or expense reimbursements were 1.35% and 0.16%, respectively.
(f) The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased and sold, which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
AIM V.I. VALUE FUND
FS-85
