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TABLE OF CONTENTS
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AIM Variable Insurance Funds, Inc.
AIM V.I. Aggressive Growth Fund............................. 1
AIM V.I. Balanced Fund...................................... 14
AIM V.I. Capital Appreciation Fund.......................... 27
AIM V.I. Capital Development Fund........................... 39
AIM V.I. Diversified Income Fund............................ 53
AIM V.I. Global Utilities Fund.............................. 66
AIM V.I. Government Securities Fund......................... 78
AIM V.I. Growth Fund........................................ 87
AIM V.I. Growth and Income Fund............................. 98
AIM V.I. High Yield Fund.................................... 110
AIM V.I. International Equity Fund.......................... 120
AIM V.I. Money Market Fund.................................. 131
AIM V.I. Value Fund......................................... 138
Directors and Officers of the Funds......................... Inside Back Cover
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The Managers' Overview
SMALL-CAP STOCKS CLAW OUT OF BEAR MARKET
A roundtable discussion with the Fund management team for AIM V.I. Aggressive
Growth Fund for the period ended December 31, 1998.
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Q. SMALL-CAP STOCKS WERE IN A BEAR MARKET interest rates three times in the fall. ------------------------------------------
FOR MUCH OF THE YEAR. HOW DID AIM V.I. These Fed moves, combined with encouraging
AGGRESSIVE GROWTH FUND PERFORM? economic indicators, sparked a strong rally The Fund rebounded strongly in the
A. The sharp sell-off in small-cap stocks in the stock market. The Dow soared to a
from mid-April through early October 1998 record high on November 23 and ended the fourth quarter of 1998, posting an
took its toll on the Fund's performance. year up 18.15%.
From the Fund's inception on May 1, 1998, impressive 22.44% total return for the
through the end of the fiscal year, Q. HOW DID SMALL-CAP STOCKS FARE IN THIS
cumulative total return was -0.94%. Over ENVIRONMENT? final three months of the year.
the same period, total return was -12.32% A. For much of the reporting period, small-
for the Russell 2000 Index, which measures cap stocks were in the grip of a severe ------------------------------------------
the performance of small-cap stocks. bear market, generally defined as a drop in
The Fund rebounded strongly in the fourth value of at least 20%. After hitting a
quarter of 1998, posting an impressive record high on April 21, the Russell 2000 rate cuts. Investors also found small-cap
22.44% total return for the final three Index lost 36.46% of its value by October stocks attractive because earnings growth
months of the year. 8, when it sank to its lowest level in more projections or smaller companies remained
than two years. In the unsettled market in the double-digit range while the
Q. WHAT WERE MARKET CONDITIONS LIKE environment, investors favored more liquid corresponding figures for larger companies
IN 1998? assets such as large-company stocks and were gravitating toward the single-digit
A. Early in the year, markets shook off U.S. Treasury bonds. level. Finally, small-cap stocks
initial concerns about the potential impact During the last three months of the year, represented one of the best bargains in
of the economic turmoil in Asia and soared however, small-cap stocks rallied strongly, the equity market as their prices
to new heights in April. Although renewed benefiting from the Fed's interest relative to
fears about Asia's impact halted the rally,
large-cap stocks rebounded and the Dow PORTFOLIO COMPOSITION
Jones Industrial Average (the Dow), an
unmanaged composite of the performance of As of 12/31/98, based on total net assets
30 large-company stocks, set a record in
July. The Dow then lost 16.82% of its value TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
between July 17 and October 8. Severe
economic problems in Russia and Latin 1. CDW Computer Centers, Inc. 1.53% 1. Computers (Software & Services) 11.96%
America as well as Asia, combined with 2. Flextronics International Ltd. 1.36 2. Electronics (Semiconductors) 6.32
political controversy in the United States, 3. CSG Systems International, Inc. 1.26 3. Health Care (Medical Products 3.98
prompted the sell-off. 4. Insight Enterprises, Inc. 1.16 & Supplies)
However, the market rebounded 5. Henry Schein, Inc. 0.92 4. Services (Data Processing) 3.77
impressively in October as the Dow posted 6. Heftel Broadcasting Corp. 0.90 5. Health Care (Specialized Services) 3.27
its best percentage gains for a single 7. Veritas Software Corp. 0.89 6. Retail (Specialty-Apparel) 2.86
month in more than 11 years. The Federal 8. Citrix Systems, Inc. 0.88 7. Retail (Specialty) 2.81
Reserve Board (the Fed) cut 9. Symbol Technologies, Inc. 0.87 8. Services (Computer Systems) 2.71
10. Concord EFS, Inc. 0.87 9. Services (Commercial & Consumer) 2.60
10. Electrical Equipment 2.60
Please keep in mind that the Fund's portfolio composition is subject to change and
there is no assurance the Fund will continue to hold any particular security.
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AIM V.I. AGGRESSIVE GROWTH FUND
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large-cap stocks were at their lowest Sipex makes high-performance analog Q. WHAT OTHER STOCKS POSTED IMPRESSIVE
levels in decades. integrated circuits for everything from GAINS FOR THE FUND?
As a result of the impressive rebound in computers and cellular phones to A. Other stocks that performed well for
small-cap stocks, the Russell 2000 Index thermostats and low-voltage power devices. the Fund included Medicis Pharmaceutical,
ended the year down only 2.55%. The Fund also benefited from owning the which markets over-the-counter skin
stocks of CSG Systems International, which products, and Heftel Broadcasting, a
Q. HOW DID YOU REACT TO THE BEAR MARKET offers processing and related services to Spanish-language broadcasting company
IN SMALL-CAP STOCKS? direct broadcast satellite providers, and which reported strong earnings growth.
A. The market downturn provided an Insight Enterprises, Inc., which markets
excellent opportunity to purchase the computer hardware and software products. Q. WHAT IS YOUR OUTLOOK?
stocks of attractive companies at low A. We believe there are several reasons
prices. In choosing stocks, we look at the Q. WHERE WAS YOUR FOCUS IN THE CONSUMER- to be optimistic about small-cap stocks.
underlying fundamentals of companies, not CYCLICAL SECTOR? In recent years, after the Fed has
the overall market. We endeavor to own the A. Our focus was on retail stocks. For most embarked on a series of interest rate
best small-cap companies because we are of the year, the nation's retailers cuts, small-cap stocks have been among
very optimistic about the long-term outlook benefited from healthy consumer spending, the top-performing equity classes. While
for small-cap stocks. stemming from low unemployment and rising past performance cannot guarantee
wages. However, sales dipped in the summer comparable future results, we believe the
Q. HOW WAS THE FUND STRUCTURED? when foreign and domestic concerns caused Fed's recent actions could have a
A. At the end of the year, technology and stock markets to plummet, shaking consumer positive impact on the long-term
consumer cyclical stocks composed 38% and confidence. Sales revived around performance of small-cap stocks.
20% of the portfolio, respectively. Thanksgiving, then declined in December Moreover, the valuations of small-cap
when much of the U.S. experienced balmy stocks relative to large-cap stocks are
Q. HOW DID TECHNOLOGY STOCKS PERFORM? weather, curtailing demand for cold-weather very compelling. And while profits for
A. Despite volatility, technology stocks items. Still, holiday sales were robust, the largest companies are dropping, they
were the top-performing equity class for largely because of a growth in online and remain robust for smaller companies.
the year. Several factors drove tech stocks Internet sales. Since smaller companies conduct most of
to new heights in 1998. Investors flocked In 1998, consumers tended to be more their business in the United States,
to Internet-related companies as they selective about where they spent their their earnings are less susceptible to
considered the possibilities for explosive money. The primary beneficiaries of this economic downturns abroad. We believe if
growth in the new medium. Technology trend were the discount and specialty these trends continue, small-cap stocks
companies also benefited from consumer stores. could continue to attract investors.
demand for computers costing less than Retail stocks that performed well for the
$1,000; the need to upgrade computers to Fund included CDW Computer Centers, which
avoid complications associated with the sells computer products through catalogs
Year 2000 problem; and the introduction of and the Internet; Abercrombie & Fitch,
faster and more powerful chips and which sells men's and women's casual
software. clothes; and American Eagle Outfitters,
Our technology holdings included Veritas which also sells casual wear.
Software, a leading developer and marketer
of information storage systems.
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2 AIM V.I. AGGRESSIVE GROWTH FUND
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SCHEDULE OF INVESTMENTS
December 31, 1998
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MARKET
SHARES VALUE
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COMMON STOCKS - 82.28%
AEROSPACE/DEFENSE - 0.36%
AAR Corp. 500 $ 11,938
- -----------------------------------------------------------------
Aviation Sales Co.(a) 100 4,063
- -----------------------------------------------------------------
16,001
- -----------------------------------------------------------------
AIR FREIGHT - 0.19%
Expeditors International of Washington, Inc. 200 8,400
- -----------------------------------------------------------------
AIRLINES - 0.61%
ASA Holdings, Inc. 100 3,050
- -----------------------------------------------------------------
Atlantic Coast Airlines Holdings(a) 500 12,500
- -----------------------------------------------------------------
Ryanair Holdings PLC-ADR (Ireland)(a) 300 11,325
- -----------------------------------------------------------------
26,875
- -----------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.64%
Danaher Corp. 200 10,862
- -----------------------------------------------------------------
Gentex Corp.(a) 500 10,000
- -----------------------------------------------------------------
Tower Automotive, Inc.(a) 300 7,482
- -----------------------------------------------------------------
28,344
- -----------------------------------------------------------------
BANKS (REGIONAL) - 2.09%
Bank United Corp. - Class A 200 7,850
- -----------------------------------------------------------------
Centennial Bancorp(a) 300 5,625
- -----------------------------------------------------------------
Centura Banks, Inc. 100 7,438
- -----------------------------------------------------------------
Community First Bankshares, Inc. 600 12,638
- -----------------------------------------------------------------
First Republic Bank(a) 300 7,518
- -----------------------------------------------------------------
First Washington Bancorp, Inc. 200 4,800
- -----------------------------------------------------------------
Provident Bankshares Corp. 200 4,975
- -----------------------------------------------------------------
Silicon Valley Bancshares(a) 200 3,406
- -----------------------------------------------------------------
Southwest Bancorp. of Texas, Inc.(a) 500 8,938
- -----------------------------------------------------------------
Sterling Bancshares, Inc. 300 4,462
- -----------------------------------------------------------------
Trustmark Corp. 200 4,525
- -----------------------------------------------------------------
Westamerica Bancorp. 200 7,350
- -----------------------------------------------------------------
Zions Bancorp. 200 12,475
- -----------------------------------------------------------------
92,000
- -----------------------------------------------------------------
BIOTECHNOLOGY - 0.78%
Curative Health Services, Inc.(a) 200 6,700
- -----------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 700 18,834
- -----------------------------------------------------------------
PathoGenesis Corp.(a) 100 5,800
- -----------------------------------------------------------------
Pharmaceutical Product Development, Inc.(a) 100 3,006
- -----------------------------------------------------------------
34,340
- -----------------------------------------------------------------
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MARKET
SHARES VALUE
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BROADCASTING (TELEVISION, RADIO & CABLE) - 1.26%
Chancellor Media Corp.(a) 200 $ 9,575
- ---------------------------------------------------------------------
Heftel Broadcasting Corp.(a) 800 39,400
- ---------------------------------------------------------------------
Jacor Communications, Inc.(a) 100 6,437
- ---------------------------------------------------------------------
55,412
- ---------------------------------------------------------------------
BUILDING MATERIALS - 0.13%
NCI Building Systems, Inc.(a) 200 5,625
- ---------------------------------------------------------------------
CHEMICALS (SPECIALTY) - 0.33%
OM Group, Inc. 400 14,600
- ---------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.12%
Brightpoint, Inc.(a) 2,200 30,250
- ---------------------------------------------------------------------
Comverse Technology, Inc.(a) 500 35,500
- ---------------------------------------------------------------------
Dycom Industries, Inc.(a) 200 11,425
- ---------------------------------------------------------------------
REMEC, Inc.(a) 400 7,200
- ---------------------------------------------------------------------
Tekelec(a) 300 4,968
- ---------------------------------------------------------------------
VideoServer, Inc.(a) 200 3,675
- ---------------------------------------------------------------------
93,018
- ---------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.82%
Brooktrout Technology, Inc.(a) 200 3,425
- ---------------------------------------------------------------------
IDX Systems Corp.(a) 100 4,400
- ---------------------------------------------------------------------
Micron Electronics, Inc.(a) 800 13,850
- ---------------------------------------------------------------------
National Instruments Corp.(a) 200 6,825
- ---------------------------------------------------------------------
Visual Networks, Inc.(a) 200 7,500
- ---------------------------------------------------------------------
36,000
- ---------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.85%
Broadcom Corp.(a) 200 24,150
- ---------------------------------------------------------------------
International Network Services(a) 200 13,300
- ---------------------------------------------------------------------
37,450
- ---------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.27%
Cybex Computer Products Corp.(a) 300 8,812
- ---------------------------------------------------------------------
Jabil Circuit, Inc.(a) 200 14,925
- ---------------------------------------------------------------------
Network Appliance, Inc.(a) 800 36,000
- ---------------------------------------------------------------------
QLogic Corp.(a) 100 13,087
- ---------------------------------------------------------------------
SMART Modular Technologies, Inc.(a) 600 16,650
- ---------------------------------------------------------------------
Xircom, Inc.(a) 300 10,200
- ---------------------------------------------------------------------
99,674
- ---------------------------------------------------------------------
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AIM V.I. AGGRESSIVE GROWTH FUND
3
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MARKET
SHARES VALUE
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COMPUTERS (SOFTWARE & SERVICES) - 11.96%
American Management Systems, Inc.(a) 200 $ 8,000
- -----------------------------------------------------------------------
Aspect Development, Inc.(a) 200 8,863
- -----------------------------------------------------------------------
Avant! Corp.(a) 400 6,400
- -----------------------------------------------------------------------
AVT Corp.(a) 400 11,600
- -----------------------------------------------------------------------
AXENT Technologies, Inc.(a) 400 12,225
- -----------------------------------------------------------------------
Business Objects S.A.-ADR (France)(a) 300 9,750
- -----------------------------------------------------------------------
Check Point Software Technologies Ltd.(a) (Israel) 400 18,325
- -----------------------------------------------------------------------
Citrix Systems, Inc.(a) 400 38,825
- -----------------------------------------------------------------------
Computer Management Sciences, Inc.(a) 500 8,688
- -----------------------------------------------------------------------
Concord Communications, Inc.(a) 200 11,350
- -----------------------------------------------------------------------
Concord EFS, Inc.(a) 900 38,137
- -----------------------------------------------------------------------
Documentum, Inc.(a) 200 10,687
- -----------------------------------------------------------------------
Electronics for Imaging, Inc.(a) 500 20,093
- -----------------------------------------------------------------------
Engineering Animation, Inc.(a) 500 27,000
- -----------------------------------------------------------------------
Gemstar International Group Ltd.(a) 200 11,450
- -----------------------------------------------------------------------
HNC Software, Inc.(a) 300 12,132
- -----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 390 7,020
- -----------------------------------------------------------------------
Jack Henry & Associates 100 4,975
- -----------------------------------------------------------------------
Kronos, Inc.(a) 100 4,432
- -----------------------------------------------------------------------
Legato Systems, Inc.(a) 300 19,782
- -----------------------------------------------------------------------
Lycos, Inc.(a) 500 27,781
- -----------------------------------------------------------------------
Macromedia, Inc.(a) 200 6,738
- -----------------------------------------------------------------------
Medical Manager Corp.(a) 600 18,825
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 200 12,650
- -----------------------------------------------------------------------
Mobius Management Systems, Inc.(a) 100 1,487
- -----------------------------------------------------------------------
PC Connection, Inc.(a) 400 7,050
- -----------------------------------------------------------------------
QRS Corp.(a) 100 4,800
- -----------------------------------------------------------------------
QuadraMed Corp.(a) 300 6,150
- -----------------------------------------------------------------------
Rational Software Corp.(a) 900 23,850
- -----------------------------------------------------------------------
Sapient Corp.(a) 100 5,600
- -----------------------------------------------------------------------
ScanSource, Inc.(a) 100 2,150
- -----------------------------------------------------------------------
Secure Computing Corp.(a) 400 7,625
- -----------------------------------------------------------------------
Sterling Software, Inc. (a) 200 5,412
- -----------------------------------------------------------------------
Technisource, Inc.(a) 100 987
- -----------------------------------------------------------------------
Transaction Systems Architects, Inc. - Class A(a) 200 10,000
- -----------------------------------------------------------------------
USWeb Corp.(a) 700 18,463
- -----------------------------------------------------------------------
Veritas Software Corp.(a) 650 38,959
- -----------------------------------------------------------------------
Visio Corp.(a) 500 18,282
- -----------------------------------------------------------------------
Whittman-Hart, Inc.(a) 200 5,525
- -----------------------------------------------------------------------
Wind River Systems(a) 300 14,100
- -----------------------------------------------------------------------
526,168
- -----------------------------------------------------------------------
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MARKET
SHARES VALUE
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CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.75%
Action Performance Companies, Inc.(a) 300 $ 10,613
- ------------------------------------------------------------------
Blyth Industries, Inc.(a) 500 15,625
- ------------------------------------------------------------------
Department 56, Inc.(a) 100 3,756
- ------------------------------------------------------------------
Fossil, Inc.(a) 100 2,875
- ------------------------------------------------------------------
32,869
- ------------------------------------------------------------------
CONSUMER FINANCE - 0.37%
AmeriCredit Corp.(a) 700 9,668
- ------------------------------------------------------------------
Doral Financial Corp. 300 6,637
- ------------------------------------------------------------------
16,305
- ------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.40%
Patterson Dental Co.(a) 400 17,400
- ------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.60%
AFC Cable Systems, Inc.(a) 300 10,088
- ------------------------------------------------------------------
Hadco Corp.(a) 100 3,500
- ------------------------------------------------------------------
Oak Industries, Inc.(a) 200 7,000
- ------------------------------------------------------------------
Sanmina Corp.(a) 400 25,000
- ------------------------------------------------------------------
Sawtek, Inc.(a) 100 1,750
- ------------------------------------------------------------------
SLI, Inc.(a) 200 5,550
- ------------------------------------------------------------------
Symbol Technologies, Inc. 600 38,363
- ------------------------------------------------------------------
Uniphase Corp.(a) 300 20,812
- ------------------------------------------------------------------
Watsco, Inc. 150 2,513
- ------------------------------------------------------------------
114,576
- ------------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.10%
Anicom, Inc.(a) 500 4,594
- ------------------------------------------------------------------
ELECTRONICS (DEFENSE) - 0.21%
Aeroflex, Inc.(a) 600 9,075
- ------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.60%
Waters Corp.(a) 300 26,175
- ------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 6.32%
Apex PC Solutions, Inc.(a) 100 2,887
- ------------------------------------------------------------------
Applied Micro Circuits Corp.(a) 400 13,587
- ------------------------------------------------------------------
Artisan Components, Inc.(a) 500 2,657
- ------------------------------------------------------------------
Burr-Brown Corp.(a) 100 2,343
- ------------------------------------------------------------------
Dallas Semiconductor Corp. 200 8,150
- ------------------------------------------------------------------
Flextronics International Ltd.(a) 700 59,938
- ------------------------------------------------------------------
Level One Communications, Inc.(a) 600 21,300
- ------------------------------------------------------------------
Micrel, Inc.(a) 200 11,000
- ------------------------------------------------------------------
Microchip Technology, Inc.(a) 800 29,600
- ------------------------------------------------------------------
PMC-Sierra, Inc.(a) 300 18,938
- ------------------------------------------------------------------
Semtech Corp.(a) 300 10,763
- ------------------------------------------------------------------
Sipex Corp.(a) 1,000 35,125
- ------------------------------------------------------------------
TranSwitch Corp.(a) 500 19,468
- ------------------------------------------------------------------
Unitrode Corp.(a) 600 10,500
- ------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 700 31,938
- ------------------------------------------------------------------
278,194
- ------------------------------------------------------------------
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AIM V.I. AGGRESSIVE GROWTH FUND
4
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MARKET
SHARES VALUE
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ENTERTAINMENT - 0.81%
Cinar Films Inc.-Class B(a) (Canada) 100 $ 2,538
- ------------------------------------------------------------------
SFX Entertainment, Inc.-Class A(a) 600 32,925
- ------------------------------------------------------------------
35,463
- ------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTORS) - 0.45%
Asyst Technologies, Inc.(a) 300 6,112
- ------------------------------------------------------------------
Etec Systems, Inc.(a) 100 4,000
- ------------------------------------------------------------------
Novellus Systems, Inc.(a) 200 9,900
- ------------------------------------------------------------------
20,012
- ------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.04%
Insignia Financial Group, Inc.(a) 200 2,425
- ------------------------------------------------------------------
NCO Group, Inc.(a) 300 13,500
- ------------------------------------------------------------------
SEI Investments Co. 300 29,812
- ------------------------------------------------------------------
45,737
- ------------------------------------------------------------------
FOODS - 1.04%
American Italian Pasta Co.-Class A(a) 200 5,275
- ------------------------------------------------------------------
Earthgrains Co. (The) 200 6,187
- ------------------------------------------------------------------
Fresh Del Monte Produce, Inc.(a) 200 4,337
- ------------------------------------------------------------------
Hain Food Group, Inc. (The)(a) 600 15,000
- ------------------------------------------------------------------
International Home Foods, Inc.(a) 200 3,375
- ------------------------------------------------------------------
Pilgrim's Pride Corp.-Class B 100 1,994
- ------------------------------------------------------------------
United Natural Foods, Inc.(a) 400 9,650
- ------------------------------------------------------------------
45,818
- ------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.64%
Alpharma, Inc.-Class A 600 21,188
- ------------------------------------------------------------------
Biovail Corporation International(a) (Canada) 200 7,563
- ------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 600 35,775
- ------------------------------------------------------------------
Parexel International Corp.(a) 300 7,500
- ------------------------------------------------------------------
72,026
- ------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.28%
Health Management Associates, Inc.-Class A(a) 1,000 21,625
- ------------------------------------------------------------------
New American Healthcare Corp.(a) 300 3,356
- ------------------------------------------------------------------
Province Healthcare Co.(a) 300 10,763
- ------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 400 20,750
- ------------------------------------------------------------------
56,494
- ------------------------------------------------------------------
HEALTH CARE (LONG-TERM CARE) - 0.33%
Assisted Living Concepts, Inc.(a) 700 9,189
- ------------------------------------------------------------------
Sunrise Assisted Living, Inc.(a) 100 5,187
- ------------------------------------------------------------------
14,376
- ------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.46%
Express Scripts, Inc.-Class A(a) 300 20,138
- ------------------------------------------------------------------
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MARKET
SHARES VALUE
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HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.98%
Haemonetics Corp.(a) 100 $ 2,275
- ---------------------------------------------------------------------
Henry Schein, Inc.(a) 900 40,275
- ---------------------------------------------------------------------
Hologic, Inc.(a) 700 8,487
- ---------------------------------------------------------------------
MiniMed, Inc.(a) 200 20,950
- ---------------------------------------------------------------------
Osteotech, Inc.(a) 300 13,950
- ---------------------------------------------------------------------
PSS World Medical, Inc.(a) 300 6,900
- ---------------------------------------------------------------------
ResMed, Inc.(a) 200 9,075
- ---------------------------------------------------------------------
Serologicals Corp.(a) 300 9,000
- ---------------------------------------------------------------------
Sybron International Corp.(a) 900 24,469
- ---------------------------------------------------------------------
VISX, Inc.(a) 400 34,975
- ---------------------------------------------------------------------
Xomed Surgical Products, Inc.(a) 150 4,800
- ---------------------------------------------------------------------
175,156
- ---------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 3.27%
Advance Paradigm, Inc.(a) 200 7,000
- ---------------------------------------------------------------------
Covance, Inc.(a) 200 5,825
- ---------------------------------------------------------------------
First Consulting Group, Inc.(a) 200 4,100
- ---------------------------------------------------------------------
Hooper Holmes, Inc. 400 11,600
- ---------------------------------------------------------------------
Lincare Holdings, Inc.(a) 100 4,056
- ---------------------------------------------------------------------
NCS HealthCare, Inc.-Class A (a) 700 16,625
- ---------------------------------------------------------------------
Ocular Sciences, Inc.(a) 400 10,700
- ---------------------------------------------------------------------
Omnicare, Inc. 600 20,850
- ---------------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 800 15,550
- ---------------------------------------------------------------------
Renal Care Group, Inc.(a) 300 8,644
- ---------------------------------------------------------------------
Res-Care, Inc.(a) 200 4,938
- ---------------------------------------------------------------------
Superior Consultant Holdings Corp.(a) 300 13,050
- ---------------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 300 8,868
- ---------------------------------------------------------------------
Veterinary Centers of America, Inc.(a) 600 11,963
- ---------------------------------------------------------------------
143,769
- ---------------------------------------------------------------------
HOMEBUILDING - 0.17%
American Homestar Corp.(a) 500 7,500
- ---------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.02%
International Comfort Products Corp. (Canada)(a) 100 800
- ---------------------------------------------------------------------
HOUSEWARES - 0.30%
Helen of Troy Ltd.(a) 900 13,218
- ---------------------------------------------------------------------
INSURANCE (LIFE & HEALTH) - 0.12%
Penn Treaty American Corp.(a) 200 5,388
- ---------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.07%
Century Business Services, Inc.(a) 200 2,875
- ---------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.58%
CMAC Investment Corp. 200 9,187
- ---------------------------------------------------------------------
Fidelity National Financial, Inc. 110 3,355
- ---------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 200 9,563
- ---------------------------------------------------------------------
HCC Insurance Holdings, Inc. 200 3,525
- ---------------------------------------------------------------------
25,630
- ---------------------------------------------------------------------
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5
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MARKET
SHARES VALUE
<S> <C> <C>
INVESTMENT MANAGEMENT - 0.52%
Eaton Vance Corp. 300 $ 6,262
- -----------------------------------------------------------------
Knight/Trimark Group, Inc.-Class A(a) 700 16,756
- -----------------------------------------------------------------
23,018
- -----------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.16%
International Speedway Corp.-Class A 100 4,050
- -----------------------------------------------------------------
Speedway Motorsports, Inc. 100 2,850
- -----------------------------------------------------------------
6,900
- -----------------------------------------------------------------
LODGING-HOTELS - 0.17%
Royal Caribbean Cruises Ltd. (Norway) 200 7,400
- -----------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.26%
Applied Power, Inc.-Class A 300 11,325
- -----------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.29%
Matthews International Corp.-Class A 200 6,300
- -----------------------------------------------------------------
Spartech Corp. 300 6,600
- -----------------------------------------------------------------
12,900
- -----------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.31%
JLG Industries, Inc. 500 7,812
- -----------------------------------------------------------------
Zebra Technologies Corp.(a) 200 5,750
- -----------------------------------------------------------------
13,562
- -----------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.87%
Daisytek International Corp.(a) 900 17,100
- -----------------------------------------------------------------
Herman Miller, Inc. 500 13,437
- -----------------------------------------------------------------
United Stationers, Inc.(a) 300 7,800
- -----------------------------------------------------------------
38,337
- -----------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.38%
Cal Dive International, Inc.(a) 200 4,150
- -----------------------------------------------------------------
Core Laboratories N.V.(a) (Netherlands) 500 9,563
- -----------------------------------------------------------------
Global Industries Ltd.(a) 500 3,062
- -----------------------------------------------------------------
16,775
- -----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.43%
Cabot Oil & Gas Corp.-Class A 300 4,500
- -----------------------------------------------------------------
Evergreen Resources, Inc.(a) 500 8,875
- -----------------------------------------------------------------
Stone Energy Corp.(a) 200 5,750
- -----------------------------------------------------------------
19,125
- -----------------------------------------------------------------
PERSONAL CARE - 0.44%
Steiner Leisure Ltd.(a) 600 19,200
- -----------------------------------------------------------------
PUBLISHING - 0.33%
IDG Books Worldwide, Inc.-Class A(a) 400 6,900
- -----------------------------------------------------------------
Meredith Corp. 200 7,575
- -----------------------------------------------------------------
14,475
- -----------------------------------------------------------------
RAILROADS - 0.37%
MotivePower Industries, Inc.(a) 500 16,093
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RESTAURANTS - 1.14%
Buffets, Inc.(a) 200 $ 2,387
- -------------------------------------------------------------
CEC Entertainment, Inc.(a) 700 19,425
- -------------------------------------------------------------
Papa John's International, Inc.(a) 300 13,238
- -------------------------------------------------------------
Sonic Corp.(a) 600 14,925
- -------------------------------------------------------------
49,975
- -------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 1.94%
Best Buy Co., Inc.(a) 100 6,138
- -------------------------------------------------------------
CDW Computer Centers, Inc.(a) 700 67,156
- -------------------------------------------------------------
Tech Data Corp.(a) 300 12,075
- -------------------------------------------------------------
85,369
- -------------------------------------------------------------
RETAIL (DISCOUNTERS) - 1.30%
Burlington Coat Factory Warehouse Corp. 500 8,157
- -------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 450 19,659
- -------------------------------------------------------------
Family Dollar Stores, Inc. 500 11,000
- -------------------------------------------------------------
99 Cents Only Stores(a) 375 18,421
- -------------------------------------------------------------
57,237
- -------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.14%
Wild Oats Markets, Inc.(a) 200 6,300
- -------------------------------------------------------------
RETAIL (HOME SHOPPING) - 0.17%
DM Management Co.(a) 400 7,600
- -------------------------------------------------------------
RETAIL (SPECIALTY) - 2.81%
Casey's General Stores, Inc. 200 2,607
- -------------------------------------------------------------
Cost Plus, Inc.(a) 200 6,275
- -------------------------------------------------------------
CSK Auto Corp.(a) 400 10,675
- -------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 400 9,700
- -------------------------------------------------------------
Linens 'N Things, Inc.(a) 500 19,813
- -------------------------------------------------------------
Michaels Stores, Inc.(a) 500 9,046
- -------------------------------------------------------------
O'Reilly Automotive, Inc.(a) 300 14,175
- -------------------------------------------------------------
PETsMART, Inc.(a) 400 4,400
- -------------------------------------------------------------
Rent-Way, Inc.(a) 300 7,294
- -------------------------------------------------------------
Renters Choice, Inc.(a) 600 19,050
- -------------------------------------------------------------
Trans World Entertainment Corp.(a) 650 12,390
- -------------------------------------------------------------
Williams-Sonoma, Inc.(a) 200 8,062
- -------------------------------------------------------------
123,487
- -------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 2.86%
Abercrombie & Fitch Co.-Class A(a) 338 23,913
- -------------------------------------------------------------
American Eagle Outfitters, Inc.(a) 400 26,650
- -------------------------------------------------------------
AnnTaylor Stores Corp.(a) 400 15,775
- -------------------------------------------------------------
Buckle, Inc. (The)(a) 850 20,400
- -------------------------------------------------------------
Goody's Family Clothing, Inc.(a) 1,100 11,035
- -------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 650 20,637
- -------------------------------------------------------------
Pacific Sunwear of California(a) 450 7,369
- -------------------------------------------------------------
125,779
- -------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
6
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING/MARKETING) - 1.18%
Abacus Direct Corp.(a) 100 $ 4,550
- ----------------------------------------------------------------
Acxiom Corp.(a) 500 15,500
- ----------------------------------------------------------------
ADVO, Inc.(a) 100 2,637
- ----------------------------------------------------------------
Market Facts, Inc.(a) 500 13,000
- ----------------------------------------------------------------
Metris Companies, Inc. 100 5,032
- ----------------------------------------------------------------
Professional Detailing, Inc.(a) 100 2,825
- ----------------------------------------------------------------
TMP Worldwide, Inc.(a) 200 8,400
- ----------------------------------------------------------------
51,944
- ----------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.60%
Bright Horizons Family Solutions, Inc.(a) 300 8,100
- ----------------------------------------------------------------
Championship Auto Racing Teams, Inc.(a) 100 2,963
- ----------------------------------------------------------------
ChoicePoint, Inc.(a) 100 6,450
- ----------------------------------------------------------------
G & K Services, Inc.-Class A 300 15,975
- ----------------------------------------------------------------
Iron Mountain, Inc.(a) 200 7,213
- ----------------------------------------------------------------
MSC Industrial Direct Co., Inc.-Class A(a) 400 9,050
- ----------------------------------------------------------------
Regis Corp. 400 16,000
- ----------------------------------------------------------------
Ritchie Bros. Auctioneers, Inc.(a) (Canada) 200 5,388
- ----------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 900 20,025
- ----------------------------------------------------------------
Strayer Education, Inc. 400 14,100
- ----------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 300 9,150
- ----------------------------------------------------------------
114,414
- ----------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 2.71%
Analysts International Corp. 200 3,850
- ----------------------------------------------------------------
Ciber, Inc.(a) 200 5,587
- ----------------------------------------------------------------
Computer Task Group, Inc. 600 16,275
- ----------------------------------------------------------------
Insight Enterprises, Inc.(a) 1,000 50,875
- ----------------------------------------------------------------
Keane, Inc.(a) 200 7,988
- ----------------------------------------------------------------
Safeguard Scientifics, Inc.(a) 100 2,743
- ----------------------------------------------------------------
SunGard Data Systems, Inc.(a) 800 31,750
- ----------------------------------------------------------------
119,068
- ----------------------------------------------------------------
SERVICES (DATA PROCESSING) - 3.77%
Affiliated Computer Services, Inc.(a) 700 31,500
- ----------------------------------------------------------------
Computer Horizons Corp.(a) 200 5,325
- ----------------------------------------------------------------
CSG Systems International, Inc.(a) 700 55,300
- ----------------------------------------------------------------
FactSet Research Systems, Inc.(a) 200 12,350
- ----------------------------------------------------------------
Lason Holdings, Inc.(a) 100 5,818
- ----------------------------------------------------------------
MedQuist, Inc.(a) 400 15,800
- ----------------------------------------------------------------
National Computer Systems, Inc. 500 18,500
- ----------------------------------------------------------------
NOVA Corp.(a) 614 21,298
- ----------------------------------------------------------------
165,891
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (EMPLOYMENT) - 1.05%
On Assignment, Inc.(a) 100 $ 3,450
- --------------------------------------------------------------------------
RCM Technologies, Inc.(a) 200 5,300
- --------------------------------------------------------------------------
Robert Half International, Inc.(a) 300 13,408
- --------------------------------------------------------------------------
Romac International, Inc.(a) 700 15,575
- --------------------------------------------------------------------------
Select Appointments Holdings PLC-ADR
(United Kingdom) 400 8,600
- --------------------------------------------------------------------------
46,333
- --------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 0.40%
Cornell Corrections, Inc.(a) 500 9,500
- --------------------------------------------------------------------------
Tetra Tech, Inc.(a) 300 8,118
- --------------------------------------------------------------------------
17,618
- --------------------------------------------------------------------------
SPECIALTY PRINTING - 0.83%
Consolidated Graphics, Inc.(a) 300 20,268
- --------------------------------------------------------------------------
Valassis Communications, Inc.(a) 200 10,325
- --------------------------------------------------------------------------
World Color Press, Inc.(a) 200 6,088
- --------------------------------------------------------------------------
36,681
- --------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.29%
Amdocs Ltd.(a) 400 6,850
- --------------------------------------------------------------------------
International Telecommunication Data Systems, Inc.(a) 400 5,900
- --------------------------------------------------------------------------
12,750
- --------------------------------------------------------------------------
TELEPHONE - 0.34%
GeoTel Communications Corp.(a) 400 14,900
- --------------------------------------------------------------------------
Textiles (Apparel) - 0.82%
Quicksilver, Inc.(a) 1,000 30,000
- --------------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 100 6,000
- --------------------------------------------------------------------------
36,000
- --------------------------------------------------------------------------
TEXTILES (HOME FURNISHINGS) - 0.48%
Mohawk Industries, Inc.(a) 500 21,032
- --------------------------------------------------------------------------
Truckers - 0.25%
Swift Transportation Co., Inc.(a) 400 11,213
- --------------------------------------------------------------------------
Trucks & Parts - 0.32%
Wabash National Corp. 700 14,218
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 1.03%
Allied Waste Industries, Inc.(a) 1,360 32,130
- --------------------------------------------------------------------------
KTI, Inc.(a) 600 12,975
- --------------------------------------------------------------------------
45,105
- --------------------------------------------------------------------------
Total Common Stocks (Cost $2,946,310) 3,619,519
- --------------------------------------------------------------------------
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S TREASURY BILLS(b) - 8.10%
4.439%, 03/25/99 (Cost $356,307) $360,000(c) $ 356,307
- --------------------------------------------------------------------------------
Total Investments, excluding repurchase agreement
(Cost $3,302,617) 3,975,826
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT(d) - 10.43%
SBC Warburg Dillon Read, Inc., 4.75%
01/04/99(e) (Cost $459,028) 459,028 459,028
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.81% 4,434,854
- --------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (0.81)% (35,751)
- --------------------------------------------------------------------------------
NET ASSETS - 100.00% $4,399,103
================================================================================
</TABLE>
(a) Non-income producing security.
(b) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover
margin requirements for open future contracts. See Note 7.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Investment Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. AGGRESSIVE GROWTH FUND
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market
value (cost $3,302,617) $ 3,975,826
- ---------------------------------------------------------------------
Repurchase agreements (cost $459,028) 459,028
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 3,114
- ---------------------------------------------------------------------
Investments sold 19,772
- ---------------------------------------------------------------------
Dividends and interest 259
- ---------------------------------------------------------------------
Variation margin 3,875
- ---------------------------------------------------------------------
Reimbursement from advisor 45,009
- ---------------------------------------------------------------------
Investment for deferred compensation plan 2,778
- ---------------------------------------------------------------------
Total assets 4,509,661
- ---------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 100,750
- ---------------------------------------------------------------------
Deferred compensation plan 2,778
- ---------------------------------------------------------------------
Accrued operating expenses 7,030
- ---------------------------------------------------------------------
Total liabilities 110,558
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $ 4,399,103
=====================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 446,621
=====================================================================
Net asset value, offering and redemption price per share $9.85
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 33,438
- ---------------------------------------------------------------------
Dividends 1,129
- ---------------------------------------------------------------------
Total investment income 34,567
- ---------------------------------------------------------------------
EXPENSES:
Advisory fees 13,054
- ---------------------------------------------------------------------
Administrative services fees 26,658
- ---------------------------------------------------------------------
Custodian fees 18,571
- ---------------------------------------------------------------------
Directors' fees and expenses 6,301
- ---------------------------------------------------------------------
Legal fees 7,771
- ---------------------------------------------------------------------
Other 3,066
- ---------------------------------------------------------------------
Total expenses 75,421
- ---------------------------------------------------------------------
Less: Fees waived and reimbursed by advisor (56,454)
- ---------------------------------------------------------------------
Expenses paid indirectly (65)
- ---------------------------------------------------------------------
Net expenses 18,902
- ---------------------------------------------------------------------
Net investment income 15,665
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (182,452)
- ---------------------------------------------------------------------
Futures contracts (213,085)
- ---------------------------------------------------------------------
(395,537)
- ---------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 673,210
- ---------------------------------------------------------------------
Futures contracts 15,300
- ---------------------------------------------------------------------
688,510
- ---------------------------------------------------------------------
Net gain from investment securities and futures contracts 292,973
- ---------------------------------------------------------------------
Net increase in net assets resulting from operations $ 308,638
=====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. AGGRESSIVE GROWTH FUND
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<CAPTION>
1998
----------
<S> <C>
OPERATIONS:
Net investment income $ 15,665
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and futures
contracts (395,537)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment securities and futures
contracts 688,510
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations 308,638
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (22,273)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 4,112,738
- ------------------------------------------------------------------------------
Net increase in net assets 4,399,103
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------------
End of period $4,399,103
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $4,108,916
- ------------------------------------------------------------------------------
Undistributed net investment income (2,786)
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities
and futures contracts (395,537)
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities and futures
contracts 688,510
- ------------------------------------------------------------------------------
$4,399,103
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Aggressive Growth Fund (the "Fund"). The Fund's investment
objective is to achieve long-term growth of capital. The Fund commenced
operations on May 1, 1998. Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If no mean is
available, as is the case in some foreign markets, the closing bid will be
used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices
are not provided by any of the above methods are valued at the mean between
last bid and asked prices based upon quotes furnished by independent
sources. Securities for which market quotations either are not readily
available or are questionable are valued at fair value as determined in
good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. Generally, trading in foreign securities
is substantially completed each day at various times prior to the close of
the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of
such times. Foreign currency exchange rates are also generally determined
prior to the close of the New York Stock Exchange. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of the New
York Stock Exchange which
10 AIM V.I. AGGRESSIVE GROWTH FUND
<PAGE>
will not be reflected in the computation of the Fund's net asset value. If
events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as
determined in good faith by or under the supervision of the Board of
Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1998
additional paid-in capital was decreased by $3,822, undistributed net
investment income was increased by $3,822 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $354,222, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I
M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.80% of
the first $150 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $150 million. During the
period May 1, 1998 (date operations commenced) through December 31, 1998, AIM
waived expenses of $11,445 and reimbursed expenses of $45,009.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $26,658
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the period May 1, 1998 (date operations commenced) through December
31, 1998, the Fund incurred legal fees of $1,697 for services rendered by
Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A
member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $65 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $65 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees,
if so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the period May 1, 1998 (date operations
commenced) through December 31, 1998 was $3,584,305 and $455,412,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $759,923
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (95,945)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $663,978
=======================================================================
</TABLE>
Cost of investments for tax purposes is $3,770,876.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Shares Amount
------- ----------
<S> <C> <C>
Sold 464,162 $4,261,686
- ---------------------------------------------------------
Issued as reinvestment of dividends 2,421 22,273
- ---------------------------------------------------------
Reacquired (19,962) (171,221)
- ---------------------------------------------------------
446,621 $4,112,738
=========================================================
</TABLE>
AIM V.I. AGGRESSIVE GROWTH FUND
11
<PAGE>
NOTE 7- FUTURES CONTRACTS
On December 31, 1998, $20,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
No. of Month/ Unrealized
Contracts Commitment Appreciation
Contract --------- ---------- ------------
<S> <C> <C> <C>
Russell 2000 Index 1 Mar 99/Buy $15,300
================================================================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------------------- ------
Income from investment operations:
Net investment income 0.04
- ----------------------------------------------------------------- ------
Net gains (losses) on securities (both realized and unrealized) (0.14)
- ----------------------------------------------------------------- ------
Total from investment operations (0.10)
- ----------------------------------------------------------------- ------
Less distributions:
Dividends from net investment income (0.05)
- ----------------------------------------------------------------- ------
Net asset value, end of period $ 9.85
================================================================= ======
Total return(a) (0.94)%
================================================================= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $4,399
================================================================= ======
Ratio of expenses to average net assets(b) 1.16%(c)
================================================================= ======
Ratio of net investment income to average net assets(d) 0.96%(c)
================================================================= ======
Portfolio turnover rate 30%
================================================================= ======
</TABLE>
(a) Total return is not annualized.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
4.62% (annualized).
(c) Ratios are annualized and based on average net assets of $2,430,925.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement was (2.50)% (annualized).
AIM V.I. AGGRESSIVE GROWTH FUND
12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Aggressive Growth Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period May 1, 1998 (commencement
of operations) through December 31, 1998. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Aggressive Growth Fund, as of December 31, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for
the period May 1, 1998 (commencement of operations) through December 31, 1998
in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. AGGRESSIVE GROWTH FUND
13
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND'S BALANCED PORTFOLIO BUFFERS
MARKET VOLATILITY
A roundtable discussion with the Fund management team for AIM V.I. Balanced Fund
for the period ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. FINANCIAL MARKETS EXPERIENCED ALL-TIME experienced losses earlier in the year ------------------------------------------
HIGHS AND ONE OF THEIR MOST VICIOUS recovered and posted gains.
CORRECTIONS DURING 1998. HOW DID AIM V.I. The 60/40 target allocation of
BALANCED FUND PERFORM IN THIS UNSETTLING Q. HOW DID THE FUND FARE IN THIS
ENVIRONMENT? VOLATILE PERIOD? stocks and bonds proved
A. Despite weakening conditions during the A. As investors turned to large, well-
past year, the new AIM V.I. Balanced Fund established companies better able to true to its worth
finished 1998 with solid returns. For the weather the market turbulence, mid-sized
reporting period from the Fund's inception and small-company stocks were hit hard by and helped dampen volatility
on May 1, 1998, to December 31, 1998, the summer correction. Since the Fund
cumulative total return was 13.02%. In invests in all market segments, including during an unusual market for
comparison, the Lipper Balanced Fund Index small- and mid-caps, this posed a
returned just 5.91% from April 30, 1998 to challenge. However, the fixed-income both types of securities.
the end of the reporting period. portion of the Fund benefited from this
phenomenon and provided protection from a -----------------------------------------
Q. WHAT WERE THE MAJOR TRENDS IN THE potentially serious decline during this
FINANCIAL MARKETS DURING 1998? difficult period. The 60/40 target
A. Beginning in July, markets succumbed to allocation of stocks and bonds proved true computers software and services at 2.61%
the second wave of "Asian contagion" when to its worth and helped dampen volatility of the Fund's portfolio; long-distance
currency troubles in Asia made their way to during an unusual market for both types of telecommunications at 3.64%; and
the United States. Russia's bond default securities. diversified financial at 4.66%.
and the downturn that ensued involved even After a difficult third quarter, the Fund
the very large, very liquid stocks that began to recover, boosted by a rally in the Q. WHAT MAKES THE COMPUTER SOFTWARE AND
were chiefly responsible for the U.S. equity market. The Fund's fixed-income SERVICES INDUSTRY ATTRACTIVE?
markets' earlier rise. holdings continued to enjoy the return of A. As earnings momentum began to improve
Domestically, the markets were hit by the their popularity as investors sought their for this industry, we increased its
collapse of several hedge funds. Investors relative safety. weighting. Strong sales of personal
sought shelter from market volatility in computers in the United States and western
the safest and most liquid investment Q. GIVEN CURRENT MARKET CONDITIONS, HOW Europe have helped to offset the economic
classes, particularly large-cap equities HAVE YOU MANAGED THE PORTFOLIO? weakness in other regions. Sales of
and U.S. Treasury securities. A. On the fixed-income side, we continued personal computers were up 15% for the
The Federal Reserve Board (the Fed) to keep to an intermediate maturity third quarter.
announced the first of three interest rate structure that is not too sensitive to As the end of the millennium nears, we
cuts in September, hoping to shelter the interest-rate changes. The bond portion of also expect the computer software and
United States from a potential global the portfolio generally has an average services industry to profit from the so-
recession. Boosted by the Fed easing, the quality rating of "A." We invested in called Y2K problem--the need to reprogram
U.S. markets halted their downturn and mainly U.S. government issues and older computers to recognize the year
rebounded. Many securities that had investment-grade corporate bonds, which 2000. In addition, this industry has
have benefited from the low inflation and
falling interest rates during the past
year. On the equity side, at the close of
the fiscal year, the Fund's top industry
holdings included
</TABLE>
14 AIM V.I. BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
Number of Holdings: 204
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
1. America Online, Inc. 0.93% 1. Financial (Diversified) 4.66%
2. Fannie Mae 0.50 2. Telecommunications (Long Distance) 3.64
3. Superior TeleCom Inc. 0.46 3. Natural Gas 3.24
4. Cisco Systems, Inc. 0.45 4. Broadcasting (Television, Radio &Cable) 3.17
5. Qwest Communications International Inc. 0.44 5. Consumer Finance 2.78
6. Lucent Technologies, Inc. 0.43 6. Computers (Software & Services) 2.61
7. Dell Computer Corp. 0.42 7. Services (Commercial & Consumer) 2.57
8. EMC Corp. 0.41 8. Banks (Money Center) 2.29
9. USWeb Corp. 0.41 9. Health Care (Medical Products & Supplies) 2.04
10. Sunrise Assisted Living, Inc. 0.40 10. Telephone 1.96
Please keep in mind that the Fund's portfolio composition is subject to change and there is no assurance
the Fund will continue to hold any particular security.
benefited from the explosive growth of the declines in the summer. Market analysts while also providing a safety net
Internet and other digital services and is are optimistic that the United States will against potential market turbulence.
expected to continue expanding well into avoid a recession in 1999. Economic growth
the next century. America Online (AOL), seems to be decelerating, so low inflation The Lipper Balanced Funds Index is a net
the Fund's largest holding, is the world's and low interest rates should continue. asset value weighted index of the 30
largest Internet service provider with This is an ideal climate for the Fund's largest funds within the balanced fund
approximately 15 million subscribers. AOL bond component. Equity performance will investment objective. It is calculated
reported robust earnings in 1998, and its depend on corporate earnings in the coming daily with adjustments for distributions
stock soared in December after it was months. We remain focused on targeting the as of the ex-dividend dates. It is
announced that the company would be added 60/40 allocation, a mix that studies have compiled by Lipper, Inc., an independent
to the S&P 500. found to provide optimal risk/return trade- mutual fund performance monitor.
off over the long run. The Fund's balanced The Standard & Poor's Composite Index of
Q. WHAT IS YOUR OUTLOOK FOR 1999? structure is well-positioned to take 500 Stocks (S&P 500) is a group of
A. By and large, we are optimistic that advantage of bull markets in stocks and in unmanaged securities widely regarded by
the U.S. market has performed a bonds, investors to be representative of the
turnaround, coming back from the steep stock market in general.
Because the Fund has been offered for
less than one year (since 5/1/98), total
return figures reflect cumulative total
return that has not yet been annualized.
</TABLE>
AIM V.I. BALANCED FUND 15
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC BONDS & NOTES - 22.68%
BANKS (MONEY CENTER) - 0.74%
First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 $ 70,000 $ 76,815
- -------------------------------------------------------------------------------
BANKS (REGIONAL) - 0.71%
HSBC Americas Inc., Unsec. Sub. Notes, 7.00%, 11/01/06 70,000 73,016
- -------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.45%
Comcast Cable Communications, Unsec. Unsub. Notes,
6.20%, 11/15/08 100,000 101,998
- -------------------------------------------------------------------------------
CSC Holdings Inc., Series B Sr. Unsec. Deb., 7.625%,
07/15/18 50,000 51,196
- -------------------------------------------------------------------------------
USA Networks, Inc., Sr. Notes, 6.75%, 11/15/05(a)
(Acquired 11/30/98; Cost $100,274) 100,000 100,266
- -------------------------------------------------------------------------------
253,460
- -------------------------------------------------------------------------------
CHEMICALS - 1.18%
Airgas Inc., Medium Term Notes, 7.14%, 03/08/04 50,000 51,056
- -------------------------------------------------------------------------------
Solutia Inc., Sr. Unsec. Deb., 6.72%, 10/15/37 70,000 71,120
- -------------------------------------------------------------------------------
122,176
- -------------------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 0.49%
Monsanto Co., Deb., 6.50%, 12/01/18(a)
(Acquired 12/04/98; Cost $49,791) 50,000 50,349
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.34%
Comverse Technology Inc., Conv. Unsec. Sub. Deb.,
4.50%, 07/01/05 28,000 35,420
- -------------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.29%
Candescent Technology Corp., Conv. Sr. Sub. Deb.,
7.00%, 05/01/03(a)
(Acquired 11/06/98-11/09/98; Cost $28,326) 33,000 29,700
- -------------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 0.33%
Network Associates Inc., Conv. Unsec. Sub. Deb., 3.44%,
02/13/18(b) 55,000 33,825
- -------------------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.70%
American Greetings, Unsec. Notes, 6.10%, 08/01/28 70,000 72,414
- -------------------------------------------------------------------------------
CONSUMER FINANCE - 2.55%
Beneficial Corp.-Series H, Medium Term Notes, 6.94%,
12/15/06 250,000 263,978
- -------------------------------------------------------------------------------
ELECTRIC COMPANIES - 0.77%
Commonwealth Edison Co., First Mortgage Notes, 7.50%,
07/01/13 70,000 79,153
- -------------------------------------------------------------------------------
ENTERTAINMENT - 0.76%
Time Warner, Inc., Unsec. Deb., 6.85%, 01/15/26 75,000 78,903
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FINANCIAL (DIVERSIFIED) - 2.88%
Associates Corp of North America, Series B Sr. Deb.,
6.95%, 11/01/18 $ 50,000 $ 53,213
- -------------------------------------------------------------------------------
Private Export Funding, Sec. Deb., 8.35%, 01/31/01 230,000 244,858
- -------------------------------------------------------------------------------
298,071
- -------------------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.38%
Elan Finance Corp., Conv. Gtd. Sub. Notes, 3.25%,
12/14/18(a)(b)
(Acquired 12/08/98; Cost $36,766) 70,000 39,375
- -------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.49%
Beckman Coulter, Sr. Unsec. Gtd. Notes, 7.45%, 03/04/08 50,000 50,865
- -------------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.50%
Merrill Lynch & Co., Unsec. Notes, 6.875%, 11/15/18 50,000 51,659
- -------------------------------------------------------------------------------
NATURAL GAS - 2.72%
Enron Corp., Notes, 6.75%, 08/01/09 70,000 72,784
- -------------------------------------------------------------------------------
K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 100,000 105,515
- -------------------------------------------------------------------------------
National Fuel Gas Co., Series D, Medium Term Notes,
6.303%, 05/27/08 100,000 103,332
- -------------------------------------------------------------------------------
281,631
- -------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.24%
R & B Falcon Corp., Sr. Notes, 9.50%, 12/15/08(a)
(Acquired 12/17/98; Cost $25,000) 25,000 25,125
- -------------------------------------------------------------------------------
RAILROADS - 1.45%
CSX Corp.-Series C, Medium Term Notes, 6.80%, 12/01/28 150,000 149,625
- -------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.08%
Affiliated Computer Services, Conv. Sub. Notes, 4.00%,
03/15/05 7,000 8,544
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.89%
Global Telesystems Group, Conv. Sr. Sub. Deb., 5.75%,
07/01/10 15,000 16,931
- -------------------------------------------------------------------------------
MCI Communications Corp., Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 70,000 74,445
- -------------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd. Notes, 6.875%,
11/15/28 100,000 104,216
- -------------------------------------------------------------------------------
195,592
- -------------------------------------------------------------------------------
TELEPHONE - 0.74%
SBC Communications Inc., Deb., 7.375%, 07/15/43 70,000 76,385
- -------------------------------------------------------------------------------
Total Domestic Bonds & Notes
(Cost $2,305,968) 2,346,081
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
16
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 28.92%
BANKS (MONEY CENTER) - 0.56%
BankAmerica Corp. 300 $ 18,038
- --------------------------------------------------------------
Chase Manhattan Corp. (The) 500 34,031
- --------------------------------------------------------------
First Union Corp. 100 6,081
- --------------------------------------------------------------
58,150
- --------------------------------------------------------------
BANKS (REGIONAL) - 0.25%
Bank United Corp.-Class A 300 11,775
- --------------------------------------------------------------
Southwest Bancorp. of Texas, Inc.(c) 800 14,300
- --------------------------------------------------------------
26,075
- --------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.21%
Coca-Cola Co. (The) 200 13,375
- --------------------------------------------------------------
PepsiCo, Inc. 200 8,188
- --------------------------------------------------------------
21,563
- --------------------------------------------------------------
BIOTECHNOLOGY - 0.48%
Biogen, Inc.(c) 300 24,900
- --------------------------------------------------------------
Genzyme Corp.(c) 500 24,875
- --------------------------------------------------------------
49,775
- --------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.72%
CBS Corp.(c) 800 26,200
- --------------------------------------------------------------
Heftel Broadcasting Corp.(c) 400 19,700
- --------------------------------------------------------------
Univision Communications, Inc.(c) 800 28,950
- --------------------------------------------------------------
74,850
- --------------------------------------------------------------
BUILDING MATERIALS - 0.12%
Group Maintenance America Corp.(c) 1,000 12,125
- --------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.89%
ADC Telecommunications, Inc.(c) 300 10,425
- --------------------------------------------------------------
ANTEC Corp.(c) 1,100 22,138
- --------------------------------------------------------------
Brightpoint, Inc.(c) 600 8,250
- --------------------------------------------------------------
Lucent Technologies, Inc. 400 44,000
- --------------------------------------------------------------
Tellabs, Inc.(c) 100 6,856
- --------------------------------------------------------------
91,669
- --------------------------------------------------------------
COMPUTERS (HARDWARE) - 1.09%
Compaq Computer Corp. 800 33,550
- --------------------------------------------------------------
Dell Computer Corp.(c) 600 43,913
- --------------------------------------------------------------
International Business Machines Corp. 100 18,475
- --------------------------------------------------------------
Sun Microsystems, Inc.(c) 200 17,125
- --------------------------------------------------------------
113,063
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (NETWORKING) - 0.83%
Ascend Communications, Inc.(c) 600 $ 39,450
- ---------------------------------------------------------------------
Cisco Systems, Inc.(c) 500 46,406
- ---------------------------------------------------------------------
85,856
- ---------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.41%
EMC Corp.(c) 500 42,500
- ---------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 2.28%
America Online, Inc. 600 96,000
- ---------------------------------------------------------------------
Computer Associates International, Inc. 100 4,263
- ---------------------------------------------------------------------
Engineering Animation, Inc.(c) 300 16,200
- ---------------------------------------------------------------------
HBO & Co. 900 25,819
- ---------------------------------------------------------------------
ISS Group, Inc.(c) 300 16,500
- ---------------------------------------------------------------------
Microsoft Corp.(c) 100 13,869
- ---------------------------------------------------------------------
Platinum Technology, Inc.(c) 400 7,650
- ---------------------------------------------------------------------
Sterling Commerce, Inc.(c) 300 13,500
- ---------------------------------------------------------------------
USWeb Corp.(c) 1,600 42,200
- ---------------------------------------------------------------------
236,001
- ---------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.09%
Blyth Industries, Inc.(c) 300 9,375
- ---------------------------------------------------------------------
CONSUMER FINANCE - 0.23%
SLM Holding Corp. 500 24,000
- ---------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.26%
Cardinal Health, Inc. 350 26,556
- ---------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.39%
General Electric Co. 400 40,825
- ---------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.13%
Quanta Services, Inc.(c) 600 13,238
- ---------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 0.23%
Intel Corp. 200 23,713
- ---------------------------------------------------------------------
ENTERTAINMENT - 0.20%
Walt Disney Co. (The) 700 21,000
- ---------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.08%
Applied Materials, Inc.(c) 200 8,538
- ---------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.78%
American Express Co. 200 20,450
- ---------------------------------------------------------------------
CIT Group, Inc. (The) 300 9,544
- ---------------------------------------------------------------------
Citigroup, Inc. 500 24,750
- ---------------------------------------------------------------------
Fannie Mae 700 51,769
- ---------------------------------------------------------------------
FINOVA Group, Inc. 200 10,788
- ---------------------------------------------------------------------
Freddie Mac 400 25,775
- ---------------------------------------------------------------------
Heller Financial, Inc. 500 14,688
- ---------------------------------------------------------------------
Medallion Financial Corp. 800 11,450
- ---------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 200 14,200
- ---------------------------------------------------------------------
183,414
- ---------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
17
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOODS - 0.57%
Keebler Foods Co.(c) 700 $ 26,338
- -------------------------------------------------------------------
Ralston-Ralston Purina Group 1,000 32,375
- -------------------------------------------------------------------
58,713
- -------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 1.18%
Abbott Laboratories 200 9,800
- -------------------------------------------------------------------
American Home Products Corp. 400 22,525
- -------------------------------------------------------------------
Bristol-Myers Squibb Co. 200 26,763
- -------------------------------------------------------------------
Johnson & Johnson 300 25,163
- -------------------------------------------------------------------
Warner-Lambert Co. 500 37,594
- -------------------------------------------------------------------
121,845
- -------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.40%
Barr Laboratories, Inc.(c) 300 14,400
- -------------------------------------------------------------------
Forest Laboratories, Inc.(c) 500 26,594
- -------------------------------------------------------------------
40,994
- -------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 1.03%
Lilly (Eli) & Co. 400 35,550
- -------------------------------------------------------------------
Merck & Co., Inc. 200 29,538
- -------------------------------------------------------------------
Pfizer, Inc. 200 25,088
- -------------------------------------------------------------------
Schering-Plough Corp. 300 16,575
- -------------------------------------------------------------------
106,751
- -------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.10%
Province Healthcare Co.(c) 300 10,763
- -------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.49%
Assisted Living Concepts, Inc.(c) 700 9,188
- -------------------------------------------------------------------
Sunrise Assisted Living, Inc.(c) 800 41,500
- -------------------------------------------------------------------
50,688
- -------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.55%
Arterial Vascular Engineering, Inc.(c) 400 21,000
- -------------------------------------------------------------------
Baxter International, Inc. 300 19,294
- -------------------------------------------------------------------
Becton, Dickinson & Co. 600 25,613
- -------------------------------------------------------------------
Guidant Corp. 200 22,050
- -------------------------------------------------------------------
Medtronic, Inc. 500 37,125
- -------------------------------------------------------------------
VISX, Inc.(c) 400 34,975
- -------------------------------------------------------------------
160,057
- -------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.43%
MAXIMUS, Inc.(c) 400 14,800
- -------------------------------------------------------------------
Omnicare, Inc. 400 13,900
- -------------------------------------------------------------------
Quintiles Transnational Corp.(c) 300 16,013
- -------------------------------------------------------------------
44,713
- -------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.12%
Ethan Allen Interiors, Inc. 300 12,300
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.27%
Colgate-Palmolive Co. 100 $ 9,288
- -------------------------------------------------------------------
Procter & Gamble Co. (The) 200 18,263
- -------------------------------------------------------------------
27,551
- -------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.41%
Equitable Companies, Inc. 300 17,363
- -------------------------------------------------------------------
Nationwide Financial Services, Inc.-Class A 300 15,506
- -------------------------------------------------------------------
ReliaStar Financial Corp. 200 9,225
- -------------------------------------------------------------------
42,094
- -------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.40%
CIGNA Corp. 200 15,463
- -------------------------------------------------------------------
Lincoln National Corp. 200 16,363
- -------------------------------------------------------------------
MONY Group, Inc.(c) 300 9,394
- -------------------------------------------------------------------
41,220
- -------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.43%
Everest Reinsurance Holdings, Inc. 400 15,575
- -------------------------------------------------------------------
Progressive Corp. 100 16,938
- -------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A 400 12,400
- -------------------------------------------------------------------
44,913
- -------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.19%
Merrill Lynch & Co., Inc. 300 20,025
- -------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.12%
Federated Investors, Inc.-Class B 700 12,688
- -------------------------------------------------------------------
LAND DEVELOPMENT - 0.08%
Silverleaf Resorts, Inc. 900 8,381
- -------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.10%
Coach USA, Inc.(c) 300 10,406
- -------------------------------------------------------------------
LODGING-HOTELS - 0.23%
Carnival Corp.-Class A 500 24,000
- -------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.22%
Tyco International Ltd. 300 22,631
- -------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.64%
Superior TeleCom, Inc. 1,000 47,250
- -------------------------------------------------------------------
USEC, Inc. 1,400 19,425
- -------------------------------------------------------------------
66,675
- -------------------------------------------------------------------
METAL FABRICATORS - 0.08%
Metals USA(c) 800 7,800
- -------------------------------------------------------------------
NATURAL GAS - 0.41%
Enron Corp. 300 17,119
- -------------------------------------------------------------------
Williams Companies, Inc. (The) 800 24,950
- -------------------------------------------------------------------
42,069
- -------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.14%
Halliburton Co. 500 14,813
- -------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
18
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION) - 0.18%
Conoco Inc. - Class A(c) 900 $ 18,789
- --------------------------------------------------------------------
OIL (INTERNATIONAL INTERGRATED) - 0.14%
Exxon Corp. 200 14,626
- --------------------------------------------------------------------
PERSONAL CARE - 0.45%
Avon Products, Inc. 400 17,700
- --------------------------------------------------------------------
Gillette Co. 600 28,989
- --------------------------------------------------------------------
46,689
- --------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.30%
AES Corp.(c) 500 23,689
- --------------------------------------------------------------------
CalEnergy Co., Inc.(c) 200 6,939
- --------------------------------------------------------------------
30,628
- --------------------------------------------------------------------
PUBLISHING - 0.07%
Meredith Corp. 200 7,576
- --------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 0.49%
Alexandria Real Estate Equities, Inc. 700 21,657
- --------------------------------------------------------------------
Boston Properties, Inc. 300 9,150
- --------------------------------------------------------------------
Crescent Real Estate Equities, Co. 400 9,200
- --------------------------------------------------------------------
Golf Trust of America, Inc. 400 11,100
- --------------------------------------------------------------------
51,107
- --------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 0.47%
American Stores Co. 500 18,470
- --------------------------------------------------------------------
Safeway, Inc.(c) 500 30,470
- --------------------------------------------------------------------
48,940
- --------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.37%
Dayton Hudson Corp. 700 37,975
- --------------------------------------------------------------------
RETAIL (SPECIALTY) - 0.37%
Linens 'N Things, Inc.(c) 700 27,738
- --------------------------------------------------------------------
Musicland Stores Corp.(c) 700 10,456
- --------------------------------------------------------------------
38,194
- --------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.22%
Washington Mutual, Inc. 600 22,913
- --------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.33%
Outdoor Systems, Inc.(c) 800 24,000
- --------------------------------------------------------------------
Young & Rubicam, Inc.(c) 300 9,713
- --------------------------------------------------------------------
33,713
- --------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 1.18%
Apollo Group, Inc.(c) 1,000 33,875
- --------------------------------------------------------------------
Avis Rent A Car, Inc.(c) 600 14,513
- --------------------------------------------------------------------
Comfort Systems USA, Inc.(c) 500 8,938
- --------------------------------------------------------------------
Hertz Corp. - Class A 400 18,250
- --------------------------------------------------------------------
INSpire Insurance Solutions, Inc.(c) 500 9,188
- --------------------------------------------------------------------
Metzler Group, Inc.(c) 500 24,344
- --------------------------------------------------------------------
Service Corp. International 200 7,613
- --------------------------------------------------------------------
SM&A Corp.(c) 300 5,700
- --------------------------------------------------------------------
122,421
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING) - 0.37%
Ceridian Corp.(c) 300 $ 20,944
- -----------------------------------------------------------------------------
DST Systems, Inc.(c) 300 17,119
- -----------------------------------------------------------------------------
38,063
- -----------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.31%
Administaff, Inc.(c) 300 7,500
- -----------------------------------------------------------------------------
Data Processing Resources Corp.(c) 600 17,550
- -----------------------------------------------------------------------------
Metamor Worldwide, Inc.(c) 300 7,500
- -----------------------------------------------------------------------------
32,550
- -----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.22%
AT&T Corp. 300 22,575
- -----------------------------------------------------------------------------
IXC Communications, Inc.(c) 600 20,175
- -----------------------------------------------------------------------------
MCI WorldCom, Inc.(c) 500 35,875
- -----------------------------------------------------------------------------
Pacific Gateway Exchange, Inc.(c) 500 24,031
- -----------------------------------------------------------------------------
WinStar Communications, Inc.(c) 600 23,400
- -----------------------------------------------------------------------------
126,056
- -----------------------------------------------------------------------------
TELEPHONE - 0.88%
Bell Atlantic Corp. 300 17,044
- -----------------------------------------------------------------------------
McLeodUSA Inc. - Class A(c) 500 15,625
- -----------------------------------------------------------------------------
Qwest Communications International, Inc.(c) 900 45,000
- -----------------------------------------------------------------------------
US West, Inc. 200 12,925
- -----------------------------------------------------------------------------
90,594
- -----------------------------------------------------------------------------
TOBACCO - 0.26%
Philip Morris Companies, Inc. 500 26,750
- -----------------------------------------------------------------------------
WASTE MANAGEMENT - 0.49%
Allied Waste Industries, Inc.(c) 1,000 23,625
- -----------------------------------------------------------------------------
Denali, Inc.(c) 1,000 14,000
- -----------------------------------------------------------------------------
Republic Services, Inc.(c) 700 12,906
- -----------------------------------------------------------------------------
50,531
- -----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $2,528,522) 2,992,491
- -----------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.10%
CHEMICALS (DIVERSIFIED) - 0.47%
Monsanto Co., $2.60 Conv. Pfd. 1,000 49,000
- -----------------------------------------------------------------------------
HOMEBUILDING - 0.14%
Fleetwood Capital Trust, $3.00 Conv. Gtd. Pfd. 300 14,063
- -----------------------------------------------------------------------------
NATURAL GAS - 0.11%
KN Energy, Inc., $3.548 Conv. Pfd. 300 11,269
- -----------------------------------------------------------------------------
PERSONAL CARE - 0.15%
Estee Lauder Co., $3.805 Conv. Pfd. 200 15,500
- -----------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.23%
United Rentals Trust I, $3.25 Conv. Pfd.(a) (Acquired
12/10/98; Cost $19,375) 500 24,063
- -----------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks (Cost
$100,198) 113,895
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
19
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE BONDS - 0.27%
Global Telesystems Group (Telecommunications - Long
Distance) Sr. Sub. Notes, 8.75%, 06/30/00 (Cost
$21,506) 10,000 $ 27,550
- ----------------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED FOREIGN BONDS & NOTES - 2.56%
CANADA - 0.95%
Laidlaw, Inc. (Services - Commercial & Consumer), Yankee
Unsec. Deb., 6.70%, 05/01/08 100,000 97,797
- ----------------------------------------------------------------------------------
NORWAY - 0.91%
Petroleum Geo-Services A.S.A., (Oil & Gas-Drilling &
Equipment), Sr. Unsec. Yankee Notes, 7.125%,
03/30/28 100,000 94,393
- ----------------------------------------------------------------------------------
UNITED KINGDOM - 0.70%
Terra Nova Ins Holdings (Insurance - Property - Casual-
ty), Sr. Unsec. Gtd. Notes, 7.20%, 8/15/07 70,000 72,279
- ----------------------------------------------------------------------------------
Total U.S. Dollar Denominated Foreign Bonds & Notes -
(Cost $263,664) 264,469
- ----------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED BONDS & NOTES(d) - 1.70%
DUTCH GUILDERS - 0.37%
Koninklijke Ahold NV (Retail - Food Chains), Conv. Sub.
Notes, 3.00%, 09/30/03 NLG 60,000 38,335
- ----------------------------------------------------------------------------------
FRENCH FRANCS - 0.34%
France Telecom (Telephone), Conv. Bonds, 2.00%,
01/01/04 FRF 183,680 34,956
- ----------------------------------------------------------------------------------
NEW ZEALAND DOLLARS - 0.99%
International Bank for Reconstruction & Development
(Banks - Money Center), Sr. Unsec. Unsub. Notes, 5.50%,
04/15/04 NZD 200,000 102,794
- ----------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Bonds & Notes (Cost
$173,980) 176,085
- ----------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITYINTERESTS - 1.81%
BERMUDA - 0.26%
Global Crossing Ltd. (Telecommunications - Long
Distance)(c) 600 27,075
- ----------------------------------------------------------------------------------
CANADA - 0.33%
Cadillac Fairview Corp. (Land Development)(c) 600 11,213
- ----------------------------------------------------------------------------------
Teleglobe, Inc. (Services - Commercial & Consumer) 600 21,600
- ----------------------------------------------------------------------------------
32,813
- ----------------------------------------------------------------------------------
CAYMAN ISLANDS - 0.20%
Scottish Annuity Life & Holdings, Ltd. (Insurance -
Life/Health) 1,500 20,625
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FINLAND - 0.47%
Fortum Corp. (Electric Companies)(c) 2,100 $ 12,773
- --------------------------------------------------------------------------------
Nokia Oyj A.B. - Class A - ADR (Communications
Equipment) 300 36,131
- --------------------------------------------------------------------------------
48,904
- --------------------------------------------------------------------------------
FRANCE - 0.15%
France Telecom S.A. - ADR (Communications Equipment) 200 15,788
- --------------------------------------------------------------------------------
GERMANY - 0.17%
DaimlerChrysler AG (Automobiles) 187 17,964
- --------------------------------------------------------------------------------
NETHERLANDS - 0.13%
Equant N.V. (Computers - Networking)(c) 200 13,563
- --------------------------------------------------------------------------------
UNITED KINGDOM - 0.10%
ESG Re Limited (Insurance - Life/Health) 500 10,125
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$156,229) 186,857
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 6.42%
Fannie Mae
6.18%, 03/15/01 $ 300,000 308,001
- --------------------------------------------------------------------------------
6.50%, 11/01/28 353,499 355,818
- --------------------------------------------------------------------------------
Total U.S. Government Agency Securities (Cost
$659,478) 663,819
- --------------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 20.02%
Bills, 4.439%, 03/25/99(e) 1,428,000 1,413,349
- --------------------------------------------------------------------------------
Notes, 15.75%, 11/15/01 25,000 32,357
- --------------------------------------------------------------------------------
Notes, 5.75%, 04/30/03(f) 600,000 624,774
- --------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $2,050,826) 2,070,480
- --------------------------------------------------------------------------------
Total Investments (excluding Repurchase Agreement)
(Cost $8,260,371) 8,841,727
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 13.11%(g)
SBC Warburg Dillon Read Inc., 4.75%,
01/04/99(h) (Cost $1,356,240) 1,356,240 1,356,240
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.59% 10,197,967
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.41% 145,369
- --------------------------------------------------------------------------------
NET ASSETS - 100.00% $10,343,336
- --------------------------------------------------------------------------------
</TABLE>
AIM V.I. BALANCED FUND
20
<PAGE>
(a) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/98 was $268,878 which
represented 2.60% of the Fund's net assets.
(b) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original discount.
(c) Non-income producing security.
(d) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(e) U.S. Treasury bills are traded on a discount basis. In such cases the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Portfolio.
(f) A portion of the principal balance was pledged as collateral to cover
margin requirements for open future contracts. See Note 7.
(g) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(h) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Investment abbreviations
ADR -- American Depositary Receipts
Conv. -- Convertible
Deb. -- Debentures
FRF -- French Francs
Gtd. -- Guaranteed
NLG -- Dutch Guilder
NZD -- New Zealand Dollar
Pfd. -- Preferred
Sec. -- Secured
Sr. -- Senior
Sub. -- Subordinated
Unsec. -- Unsecured
Unsub. -- Unsubordinated
See Notes to Financial Statements.
AIM V.I. BALANCED FUND
21
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreement, at market value (cost
$8,260,371) $ 8,841,727
- -------------------------------------------------------------------------------
Repurchase Agreement (cost $1,356,240) 1,356,240
- -------------------------------------------------------------------------------
Receivables for:
Investments sold 8,875
- -------------------------------------------------------------------------------
Reimbursement from advisor 26,753
- -------------------------------------------------------------------------------
Capital stock sold 73,907
- -------------------------------------------------------------------------------
Dividends and interest 61,043
- -------------------------------------------------------------------------------
Variation margin 5,950
- -------------------------------------------------------------------------------
Investment for deferred compensation plan 2,779
- -------------------------------------------------------------------------------
Total assets 10,377,274
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 24,717
- -------------------------------------------------------------------------------
Deferred compensation plan 2,779
- -------------------------------------------------------------------------------
Accrued directors' fees 100
- -------------------------------------------------------------------------------
Accrued operating expenses 6,342
- -------------------------------------------------------------------------------
Total liabilities 33,938
- -------------------------------------------------------------------------------
Net assets applicable to shares outstanding $10,343,336
- -------------------------------------------------------------------------------
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- -------------------------------------------------------------------------------
Outstanding 928,627
- -------------------------------------------------------------------------------
Net asset value, offering and redemption price per share $11.14
- -------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 3,473
- --------------------------------------------------------------------------
Interest 135,187
- --------------------------------------------------------------------------
Total investment income 138,660
- --------------------------------------------------------------------------
EXPENSES:
Advisory fees 21,238
- --------------------------------------------------------------------------
Administrative services fees 26,649
- --------------------------------------------------------------------------
Custodian fees 12,932
- --------------------------------------------------------------------------
Directors' fees and expenses 6,407
- --------------------------------------------------------------------------
Legal fees 8,287
- --------------------------------------------------------------------------
Other 4,734
- --------------------------------------------------------------------------
Total expenses 80,247
- --------------------------------------------------------------------------
Less: Expenses paid indirectly (39)
- --------------------------------------------------------------------------
Fees waived and expenses reimbursed by advisor (46,739)
- --------------------------------------------------------------------------
Net expenses 33,469
- --------------------------------------------------------------------------
Net investment income 105,191
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 11,031
- --------------------------------------------------------------------------
Foreign currencies 1,960
- --------------------------------------------------------------------------
Futures contracts 122,291
- --------------------------------------------------------------------------
Option contracts 213
- --------------------------------------------------------------------------
135,495
- --------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 581,356
- --------------------------------------------------------------------------
Foreign currencies (443)
- --------------------------------------------------------------------------
Futures contracts 119,775
- --------------------------------------------------------------------------
700,688
- --------------------------------------------------------------------------
Net gain from investment securities and futures contracts 836,183
- --------------------------------------------------------------------------
Net increase in net assets resulting from operations $941,374
- --------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
AIM V.I. BALANCED FUND
22
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 105,191
- ---------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures and option contracts 135,495
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities, foreign
currencies and futures contracts 700,688
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations 941,374
- ---------------------------------------------------------------------------
Dividends from net investment income (115,294)
- ---------------------------------------------------------------------------
Distributions from net realized gains (20,295)
- ---------------------------------------------------------------------------
Net increase from capital stock transactions 9,537,551
- ---------------------------------------------------------------------------
Net increase in net assets 10,343,336
- ---------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ---------------------------------------------------------------------------
End of period $10,343,336
===========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 9,536,421
- ---------------------------------------------------------------------------
Undistributed net investment income (2,790)
- ---------------------------------------------------------------------------
Undistributed net realized gain from investment securities,
foreign currencies, futures and options contracts 109,017
- ---------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and futures contracts 700,688
- ---------------------------------------------------------------------------
$10,343,336
===========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Balanced Fund (the "Fund"). The Fund's investment objective is
to achieve as high a total return to investors as possible, consistent with
preservation of capital. The Fund commenced operations on May 1, 1998.
Currently, shares of the Fund are sold only to insurance company separate
accounts to fund the benefits of variable annuity contracts and variable life
insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market prices are not provided by
any of the above methods are valued at the mean between last bid and asked
prices based upon quotes furnished by independent sources. Securities for
which market quotations either are not readily available or are questionable
are valued at fair value as determined in good faith by or under the
supervision of the Company's officers in a manner specifically authorized by
the Board of Directors. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange.
AIM V.I. BALANCED FUND 23
<PAGE>
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1998
additional paid-in capital was decreased by $1,130, undistributed net
investment income was increased by $7,313 and undistributed net realized
gains was decreased by $6,183 in order to comply with the requirements of
the American Institute of Certified Public Accountants Statement of
Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
F. Put Options - The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The option's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
G. Bond Premiums - It is the policy of the Fund not to amortize market
premiums on bonds for financial reporting purposes.
H. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
I. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
24 AIM V.I. BALANCED FUND
<PAGE>
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of
the first $150 million of the Fund's average daily net assets, plus 0.50% of the
Fund's average daily net assets in excess of $150 million. During the period May
1, 1998 (date operations commenced) through December 31, 1998, AIM waived fees
and reimbursed expenses of $46,739.
Pursuant to a master administrative services agreement between the Company and
AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $26,649 for
such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$1,697 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $39 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $39 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees,
if so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the period May 1, 1998 (date operations
commenced) through December 31, 1998 was $7,087,066 and $251,369,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $611,897
- -----------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (30,541)
- -----------------------------------------------------------------------
Net unrealized appreciation of investment securities $581,356
=======================================================================
</TABLE>
Investments have the same cost for tax and financial statement purposes.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------
SHARES AMOUNT
------- ----------
<S> <C> <C>
Sold 954,695 $9,785,741
- -------------------------------------------------------------
Issued as reinvestment of distributions 12,578 135,589
- -------------------------------------------------------------
Reacquired (38,646) (383,779)
- -------------------------------------------------------------
928,627 $9,537,551
=============================================================
</TABLE>
NOTE 7 - OPEN FUTURES CONTRACTS
On December 31, 1998, $109,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts. Open futures contracts were as follows:
<TABLE>
<CAPTION>
NUMBER OF UNREALIZED
CONTRACTS CONTRACTS MONTH/COMMITMENT APPRECIATION
--------- --------- ---------------- ------------
<S> <C> <C> <C>
S&P 500 Index 7 March 99/Buy $119,775
======================================================
</TABLE>
NOTE 8 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period -- --
- ------------------------------------------------
Written 1 122
- ------------------------------------------------
Closed (1) (122)
- ------------------------------------------------
Exercised -- --
- ------------------------------------------------
Expired -- --
- ------------------------------------------------
End of period -- --
================================================
</TABLE>
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------- -------
Income from investment operations:
Net investment income 0.12
- -------------------------------------------------------- -------
Net gains on securities (both realized and unrealized) 1.18
- -------------------------------------------------------- -------
Total from investment operations 1.30
- -------------------------------------------------------- -------
Less Distributions:
Dividends from net investment income (0.14)
- -------------------------------------------------------- -------
Distributions from net realized gains (0.02)
- -------------------------------------------------------- -------
Total Distributions (0.16)
- -------------------------------------------------------- -------
Net asset value, end of period $ 11.14
======================================================== =======
Total return(a) 13.02%
======================================================== =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $10,343
======================================================== =======
Ratio of expenses to average net assets(b) 1.18%(c)
======================================================== =======
Ratio of net investment income to average net assets(d) 3.71%(c)
======================================================== =======
Portfolio turnover rate 9%
======================================================== =======
</TABLE>
(a) Total return is not annualized.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
2.83% (annualized).
(c) Ratios are annualized and based on average net assets of $4,218,617.
(d) After fee waivers and/or expense reimbursements. Ratio of net investment
income to average net assets prior to fee waivers and/or expense
reimbursement was 2.07% (annualized).
AIM V.I. BALANCED FUND
25
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Balanced Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period May 1, 1998 (commencement
of operations) through December 31, 1998. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Balanced Fund, as of December 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the period May 1,
1998 (commencement of operations) through December 31, 1998 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
26 AIM V.I. BALANCED FUND
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND POSTS STRONG
RETURN IN VOLATILE MARKET
A roundtable discussion with the Fund management team for AIM V.I. Capital
Appreciation Fund for the fiscal year ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. HOW DID THE FUND PERFORM DURING Top 10 Equity Holdings individual companies, not the overall
THE FISCAL YEAR? As of 12/31/98, based on total net assets market. This discipline led us to
A. Fund performance fluctuated 1. Compuware 1.37% significant holdings in technology,
considerably during a very volatile fiscal 2. EMC Corp. 1.35 retail and health care.
year. Like the entire mid-cap stock 3. Guidant Corp. 1.35
market, the Fund was hard hit during a 4. Ascend Communications, Inc. 1.30 Q. WHY IS TECHNOLOGY ATTRACTIVE?
deep sell-off in August, but it later 5. Concord EFS, Inc. 1.28 A. The "millennium bug" that requires
rallied strongly, finishing the fiscal 6. 3Com Corp. 1.21 reprogramming older computers and software
year with total return of 19.30%. That 7. Cardinal Health, Inc. 1.17 to recognize the year 2000 continues to
outperformed the Standard & Poor's 400 8. Staples, Inc. 1.16 provide opportunity for the computer
Midcap Index, which produced a total 9. BMC Software, Inc. 1.15 software and services industry. The
return of 18.25%. Large-cap stocks in the 10. Becton, Dickinson & Co. 1.12 worldwide cost of fixing the bug could
Standard & Poor's 500 posted a total total between $300 billion and $600
return of 28.60% during the year. Please keep in mind that the Fund's billion, according to the Gartner Group,
portfolio composition is subject to change Inc., a technology research firm.
Q. WHY WERE MARKETS VOLATILE? and there is no assurance the Fund will Computer know-how is also crucial to
A. As the fiscal year opened, concern continue to hold any particular security. the gradual conversion of European
about Asia's financial difficulties was currencies to the euro starting in 1999.
widespread. The smaller and mid-size multiple: the seemingly intractable Asian Among the portfolio's software and
company stocks in which the Fund invests downturn, a default on Russian government services holdings is Citrix Systems, Inc.
were especially out of favor as investors debt, the collapse of some highly which for three years running has been
sought the relative safety of blue-chip leveraged hedge funds, and recognition cited by Deloitte & Touche as one of the
stocks. Markets rallied in the spring as that domestic corporate profit growth was fastest-growing technology companies in
investors seemed to shrug off Asian slipping after several years of robust the country.
worries. growth.
In August, another wave of concern Late in the fiscal year, amid evidence Q. AND RETAILERS--WHY DO THEY REMAIN
washed over markets. Its causes were of a worldwide credit crunch, the Federal WELL-REPRESENTED IN THE PORTFOLIO?
Reserve Board (the Fed) shifted its focus A. Retailers did a brisk Christmas
--------------- from fighting inflation to providing business--and the week after Christmas was
liquidity and supporting markets. In three very strong. Same-store sales rose 5.2% in
Because U.S. drug manufacturers steps, it lowered the short-term target December over the same month in 1997. And
federal funds rate from 5.50% to 4.75%, it was a good year for specialty apparel
and distributors are not heavily and equity markets rallied in response. In retailers in the Fund's portfolio, such as
the short run at least, the Fed appeared Abercrombie & Fitch Co., whose 1998 sales
dependent on the Asian and to have assured investors that it would grew more than 50% over 1997. As always,
intervene to forestall a recession. we seek out the best earnings stories we
Latin American markets, can find. One of our major holdings is in
Q. HOW DID YOU MANAGE THE FUND IN A the retail industry: the office-products
they may be relatively immune to CHANGEABLE ENVIRONMENT? specialist Staples, Inc. This company
A. We stuck with our disciplined, earnings- recently announced its 17th consecutive
foreign turmoil and provide driven stock selection process, looking at quarter of earnings per share growth of
the underlying fundamentals of more than 30%.
a safe haven in the months ahead.
---------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND 27
<PAGE>
<TABLE>
<S> <C> <C>
--------------- companies in the portfolio averaged more when the Fed eases monetary policy, and
than 25% over the same period in 1997, and we were encouraged to note that this was
Historically, smaller company stocks such double-digit growth is projected for true after the Fed began lowering interest
the next year. By contrast, average rates. Though this is much too short a
do better than large-company stocks earnings growth for the large-cap stocks period in which to identify a market
in the S&P 500 was negative for the trend, from the Fed's first interest rate
when the Fed eases monetary policy, September 30 quarter end. cut September 29 through the December 31
. Valuations of the stocks in the close of the fiscal year, midcaps did
and we were encouraged to note that mid-cap sector are significantly lower outperform large caps. The S&P 400
than in the large-cap sector. These mid- advanced 25.00% while the large-cap S&P
this was true after the Fed began cap stocks also offer some refuge from 500 rose 17.60%. Of course, a favorable
Asian woes because they tend to have less environment for smaller-company stocks
lower interest rates. international exposure. should be good for the Fund.
. Historically, smaller-company stocks
--------------- do better than large-company stocks
Q. AND WHAT ARE SOME POSITIVE TRENDS IN GROWTH OF $10,000 INVESTMENT
THE HEALTH-CARE SECTOR? From 5/5/93-12/31/98 AVERAGE ANNUAL TOTAL RETURN
A. Many of our health-care holdings are in Lipper As of 12/31/98
the medical products and pharmaceuticals Capital Inception (5/5/93) 18.77%
industries, which are not heavily AIM V.I. Capital S&P 500 Appreciation 5 Years 17.23
dependent on the Asian and Latin American Appreciation Fund Stock Index Fund Index 1 Year 19.30
markets. Therefore, they may be relatively (In thousands)
immune to foreign turmoil. Their strong 5/5/93 $10,000 $10,000 $10,000
earnings growth also is expected to 12/93 11,949 10,794 11,534
continue. 12/94 12,248 10,936 11,250
Holdings in this area include Becton, 12/95 16,618 15,042 14,805
Dickinson & Co., whose products include 12/96 19,540 18,495 17,019
drug injection and blood collection 12/97 22,179 24,663 20,417
devices; and Guidant Corp., maker of 12/98 26,460 31,711 24,497
cardiovascular devices such as stents and
defibrillators. Past performance cannot guarantee comparable future results.
Q. WHAT IS YOUR NEAR-TERM OUTLOOK ON MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF
THE ECONOMY? AN INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL
A. We are optimistic that the U.S. will PERFORMANCE SHOWN.
avoid a recession in 1999. The economy
will likely experience annual gross The performance figures shown represent the AIM V.I. Capital Appreciation Fund,
domestic product growth in the 1.5% to are not intended to reflect actual annuity values, and do not reflect charges at
2.00% range, so low inflation and low the separate account level, which, if applied, would lower the performance
interest rates should continue. The results. The Fund's performance figures are historical and reflect reinvestment
challenge will be earnings. With many of all distributions and changes in the net asset value. The Fund's investment
global markets in or near recession and return and principal value will fluctuate so that the Fund's shares, when
the U.S. economy expanding more slowly, redeemed, may be worth more or less than their original cost. Source: Towers
companies will be sorely tested to keep Data Systems HYPO/REGISTERED TRADEMARK/.
earnings advancing. The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of the
Q. AND WHAT DO YOU THINK ABOUT THE MIDCAP stock market in general. Results shown assume the reinvestment of dividends. The
MARKET SECTOR WHERE THE FUND INVESTS? Standard & Poor's 400 Mid-Cap Index (S&P 400) is an unmanaged index comprising
A. Here are three reasons for our common stocks of approximately 400 mid-capitalization companies. The unmanaged
optimism about mid-cap stocks: Lipper Capital Appreciation Fund Index represents an average of the performance
. For the quarter ended September 30, of the 30 largest capital appreciation mutual funds. Data for the S&P 500 and
1998, reported earnings growth for the Lipper Index are for the period 4/30/93-12/31/98.
An investment cannot be made in any index listed. Unless otherwise indicated,
index results include reinvested dividends and do not reflect sales charges.
</TABLE>
28 AIM V.I. CAPITAL APPRECIATION FUND
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
COMMON STOCKS - 87.72%
AEROSPACE/DEFENSE - 0.42%
AAR Corp. 50,000 $ 1,193,750
- -------------------------------------------------------------
BE Aerospace, Inc.(a) 20,000 420,000
- -------------------------------------------------------------
Gulfstream Aerospace Corp.(a) 20,500 1,091,625
- -------------------------------------------------------------
2,705,375
- -------------------------------------------------------------
AIRLINES - 0.23%
Southwest Airlines Co. 65,500 1,469,656
- -------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.44%
Danaher Corp. 52,300 2,840,544
- -------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.31%
Northern Trust Corp. 23,000 2,008,188
- -------------------------------------------------------------
BANKS (REGIONAL) - 2.63%
AmSouth Bancorporation 30,000 1,368,750
- -------------------------------------------------------------
First Tennessee National Corp. 50,000 1,903,125
- -------------------------------------------------------------
Firstar Corp. 65,000 6,061,250
- -------------------------------------------------------------
Golden State Bancorp, Inc.(a) 53,000 881,125
- -------------------------------------------------------------
Hibernia Corp.-Class A 85,000 1,476,875
- -------------------------------------------------------------
North Fork Bancorporation, Inc. 110,000 2,633,125
- -------------------------------------------------------------
TCF Financial Corp. 40,000 967,500
- -------------------------------------------------------------
Zions Bancorp. 27,500 1,715,313
- -------------------------------------------------------------
17,007,063
- -------------------------------------------------------------
BIOTECHNOLOGY - 0.72%
Biogen, Inc.(a) 44,200 3,668,600
- -------------------------------------------------------------
Curative Health Services, Inc.(a) 29,700 994,950
- -------------------------------------------------------------
4,663,550
- -------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO, &
CABLE) - 2.34%
Chancellor Media Corp.(a) 62,272 2,981,272
- -------------------------------------------------------------
Comcast Corp.-Class A 42,400 2,488,350
- -------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 21,500 1,486,187
- -------------------------------------------------------------
Heftel Broadcasting Corp.(a) 22,100 1,088,425
- -------------------------------------------------------------
Liberty Media Group(a) 60,000 2,763,750
- -------------------------------------------------------------
Univision Communications, Inc.(a) 65,500 2,370,281
- -------------------------------------------------------------
USA Networks, Inc.(a) 59,600 1,974,250
- -------------------------------------------------------------
15,152,515
- -------------------------------------------------------------
BUILDING MATERIALS - 0.19%
Masco Corp. 41,800 1,201,750
- -------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.44%
ADC Telecommunications, Inc.(a) 17,200 597,700
- -------------------------------------------------------------
Andrew Corp.(a) 75,000 1,237,500
- -------------------------------------------------------------
Comverse Technology, Inc.(a) 41,100 2,918,100
- -------------------------------------------------------------
ECI Telecommunications Ltd. (Israel) 19,000 676,875
- -------------------------------------------------------------
General Instrument Corp.(a) 66,000 2,239,875
- -------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Finland) 56,300 6,780,631
- -------------------------------------------------------------
QUALCOMM, Inc.(a) 26,000 1,347,125
- -------------------------------------------------------------
15,797,806
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
COMPUTERS (HARDWARE) - 1.67%
Apple Computer, Inc.(a) 23,000 $ 941,562
- ---------------------------------------------------------------------------
Comdisco, Inc. 165,200 2,787,750
- ---------------------------------------------------------------------------
Dell Computer Corp.(a) 40,600 2,971,413
- ---------------------------------------------------------------------------
Gateway 2000, Inc.(a) 22,100 1,131,244
- ---------------------------------------------------------------------------
IDX Systems Corp.(a) 19,000 836,000
- ---------------------------------------------------------------------------
Micron Electronics, Inc.(a) 23,400 405,112
- ---------------------------------------------------------------------------
NCR Corp.(a) 42,000 1,753,500
- ---------------------------------------------------------------------------
10,826,581
- ---------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 2.99%
Ascend Communications, Inc.(a) 128,300 8,435,725
- ---------------------------------------------------------------------------
Cisco Systems, Inc.(a) 16,625 1,543,008
- ---------------------------------------------------------------------------
Newbridge Networks Corp. (Canada)(a) 50,000 1,518,750
- ---------------------------------------------------------------------------
3Com Corp.(a) 175,000 7,842,187
- ---------------------------------------------------------------------------
19,339,670
- ---------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 2.45%
Adaptec, Inc.(a) 52,300 918,519
- ---------------------------------------------------------------------------
EMC Corp.(a) 103,000 8,755,000
- ---------------------------------------------------------------------------
Lexmark International Group, Inc.(a) 40,200 4,040,100
- ---------------------------------------------------------------------------
Seagate Technology, Inc.(a) 71,200 2,153,800
- ---------------------------------------------------------------------------
15,867,419
- ---------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 9.99%
America Online, Inc. 32,500 5,200,000
- ---------------------------------------------------------------------------
Aspect Development, Inc.(a) 40,000 1,772,500
- ---------------------------------------------------------------------------
BMC Software, Inc.(a) 167,000 7,441,938
- ---------------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 105,800 3,147,550
- ---------------------------------------------------------------------------
Check Point Software Technologies Ltd. (Israel)(a) 22,200 1,017,037
- ---------------------------------------------------------------------------
Citrix Systems, Inc.(a) 55,700 5,406,381
- ---------------------------------------------------------------------------
Compuware Corp.(a) 113,300 8,851,562
- ---------------------------------------------------------------------------
Concord EFS, Inc.(a) 194,800 8,254,649
- ---------------------------------------------------------------------------
Electronic Arts, Inc.(a) 21,000 1,178,625
- ---------------------------------------------------------------------------
Informix Corp.(a) 35,600 351,550
- ---------------------------------------------------------------------------
Intuit, Inc.(a) 27,000 1,957,500
- ---------------------------------------------------------------------------
Learning Company, Inc. (The)(a) 45,000 1,167,188
- ---------------------------------------------------------------------------
Microsoft Corp.(a) 11,100 1,539,431
- ---------------------------------------------------------------------------
Network Associates, Inc.(a) 28,200 1,868,250
- ---------------------------------------------------------------------------
Novell, Inc.(a) 35,000 634,375
- ---------------------------------------------------------------------------
Parametric Technology Co.(a) 75,000 1,228,125
- ---------------------------------------------------------------------------
Sterling Commerce, Inc.(a) 56,055 2,522,475
- ---------------------------------------------------------------------------
Sterling Software, Inc.(a) 63,600 1,721,175
- ---------------------------------------------------------------------------
Synopsys, Inc.(a) 60,000 3,255,000
- ---------------------------------------------------------------------------
VERITAS Software Corp.(a) 36,100 2,163,744
- ---------------------------------------------------------------------------
Wind River Systems(a) 40,000 1,880,000
- ---------------------------------------------------------------------------
Yahoo! Inc.(a) 9,000 2,115,563
- ---------------------------------------------------------------------------
64,674,618
- ---------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
29
<PAGE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.23%
Action Performance Companies, Inc.(a) 16,000 $ 566,000
- ----------------------------------------------------------------------
Blyth Industries, Inc.(a) 30,400 950,000
- ----------------------------------------------------------------------
1,516,000
- ----------------------------------------------------------------------
CONSUMER FINANCE - 1.84%
Capital One Financial Corp. 33,600 3,864,000
- ----------------------------------------------------------------------
Countrywide Credit Industries, Inc. 23,400 1,174,388
- ----------------------------------------------------------------------
Providian Financial Corp. 66,300 4,972,500
- ----------------------------------------------------------------------
SLM Holding Corp. 40,050 1,922,400
- ----------------------------------------------------------------------
11,933,288
- ----------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 2.06%
Bergen Brunswig Corp.-Class A 75,400 2,629,575
- ----------------------------------------------------------------------
Cardinal Health, Inc. 99,630 7,559,426
- ----------------------------------------------------------------------
Patterson Dental Co.(a) 20,000 870,000
- ----------------------------------------------------------------------
SUPERVALU, INC. 26,300 736,400
- ----------------------------------------------------------------------
U.S. Foodservice(a) 31,200 1,528,800
- ----------------------------------------------------------------------
13,324,201
- ----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 3.12%
American Power Conversion Corp.(a) 82,300 3,986,406
- ----------------------------------------------------------------------
Molex, Inc. 4,300 163,938
- ----------------------------------------------------------------------
Sanmina Corp.(a) 30,000 1,875,000
- ----------------------------------------------------------------------
SCI Systems, Inc.(a) 42,400 2,448,600
- ----------------------------------------------------------------------
Solectron Corp.(a) 66,700 6,198,931
- ----------------------------------------------------------------------
Symbol Technologies, Inc. 64,250 4,107,984
- ----------------------------------------------------------------------
Uniphase Corp.(a) 20,300 1,408,313
- ----------------------------------------------------------------------
20,189,172
- ----------------------------------------------------------------------
ELECTRONICS (COMPONENT DISTRIBUTORS) - 0.17%
Arrow Electronics, Inc.(a) 41,100 1,096,856
- ----------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.38%
Perkin-Elmer Corp. 7,500 731,719
- ----------------------------------------------------------------------
Waters Corp.(a) 20,000 1,745,000
- ----------------------------------------------------------------------
2,476,719
- ----------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 3.63%
Altera Corp.(a) 55,200 3,360,300
- ----------------------------------------------------------------------
Analog Devices, Inc.(a) 85,000 2,666,875
- ----------------------------------------------------------------------
Linear Technology Corp. 40,000 3,582,500
- ----------------------------------------------------------------------
Maxim Integrated Products, Inc.(a) 66,400 2,900,850
- ----------------------------------------------------------------------
Microchip Technology, Inc.(a) 94,200 3,485,400
- ----------------------------------------------------------------------
Micron Technology, Inc.(a) 44,300 2,239,919
- ----------------------------------------------------------------------
National Semiconductor Corp.(a) 70,000 945,000
- ----------------------------------------------------------------------
PMC-Sierra, Inc.(a) 39,500 2,493,437
- ----------------------------------------------------------------------
Xilinx, Inc.(a) 27,800 1,810,475
- ----------------------------------------------------------------------
23,484,756
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
EQUIPMENT (SEMICONDUCTOR) - 0.26%
Applied Materials, Inc.(a) 40,000 $ 1,707,500
- ----------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 0.74%
FINOVA Group, Inc. 27,500 1,483,281
- ----------------------------------------------------------------------
MGIC Investment Corp. 46,633 1,856,573
- ----------------------------------------------------------------------
Newcourt Credit Group, Inc. (Canada) 41,600 1,453,400
- ----------------------------------------------------------------------
4,793,254
- ----------------------------------------------------------------------
FOODS - 0.51%
Earthgrains Co. (The) 10,200 315,562
- ----------------------------------------------------------------------
Flowers Industries, Inc. 45,000 1,077,188
- ----------------------------------------------------------------------
Keebler Foods Co.(a) 8,900 334,863
- ----------------------------------------------------------------------
Quaker Oats Co. (The) 26,600 1,582,700
- ----------------------------------------------------------------------
3,310,313
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.49%
Alpharma, Inc.-Class A 12,750 450,234
- ----------------------------------------------------------------------
Elan Corp. PLC-ADR (Ireland)(a) 44,100 3,067,706
- ----------------------------------------------------------------------
Forest Laboratories, Inc.(a) 22,400 1,191,400
- ----------------------------------------------------------------------
Jones Medical Industries, Inc. 99,500 3,631,750
- ----------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(a) 33,000 1,967,625
- ----------------------------------------------------------------------
Mylan Laboratories, Inc. 104,700 3,298,050
- ----------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 40,000 2,515,000
- ----------------------------------------------------------------------
16,121,765
- ----------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.13%
Health Management Associates, Inc.-Class A(a) 174,202 3,767,118
- ----------------------------------------------------------------------
Universal Health Services, Inc.-Class B(a) 68,400 3,548,250
- ----------------------------------------------------------------------
7,315,368
- ----------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.14%
HCR Manor Care, Inc.(a) 30,000 881,250
- ----------------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.62%
Express Scripts, Inc.-Class A(a) 43,600 2,926,650
- ----------------------------------------------------------------------
Trigon Healthcare, Inc.(a) 28,500 1,063,406
- ----------------------------------------------------------------------
3,990,056
- ----------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.75%
Bausch & Lomb, Inc. 25,000 1,500,000
- ----------------------------------------------------------------------
Becton, Dickinson & Co. 169,500 7,235,531
- ----------------------------------------------------------------------
Biomet, Inc. 86,800 3,493,700
- ----------------------------------------------------------------------
Guidant Corp. 79,100 8,720,775
- ----------------------------------------------------------------------
Henry Schein, Inc.(a) 34,985 1,565,579
- ----------------------------------------------------------------------
Safeskin Corp.(a) 14,300 344,987
- ----------------------------------------------------------------------
Sybron International Corp.(a) 51,400 1,397,438
- ----------------------------------------------------------------------
24,258,010
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
30
<PAGE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (SPECIALIZED SERVICES) - 1.76%
Alza Corp.(a) 42,000 $ 2,194,500
- -------------------------------------------------------------------------
Covance, Inc.(a) 47,000 1,368,875
- -------------------------------------------------------------------------
HEALTHSOUTH Corp.(a) 43,200 666,900
- -------------------------------------------------------------------------
Omnicare, Inc. 88,400 3,071,900
- -------------------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 15,000 291,562
- -------------------------------------------------------------------------
Quintiles Transnational Corp.(a) 21,100 1,126,213
- -------------------------------------------------------------------------
Total Renal Care Holdings, Inc.(a) 90,000 2,660,625
- -------------------------------------------------------------------------
11,380,575
- -------------------------------------------------------------------------
HOMEBUILDING - 0.50%
Clayton Homes, Inc. 146,625 2,025,258
- -------------------------------------------------------------------------
Fleetwood Enterprises, Inc. 14,000 486,500
- -------------------------------------------------------------------------
Kaufman and Broad Home Corporation 24,600 707,250
- -------------------------------------------------------------------------
3,219,008
- -------------------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.59%
Leggett & Platt, Inc. 70,000 1,540,000
- -------------------------------------------------------------------------
Maytag Corp. 37,000 2,303,250
- -------------------------------------------------------------------------
3,843,250
- -------------------------------------------------------------------------
HOUSEWARES - 0.09%
Helen of Troy Ltd.(a) 38,000 558,125
- -------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 1.25%
AFLAC, Inc. 38,900 1,711,600
- -------------------------------------------------------------------------
Provident Companies, Inc. 60,000 2,490,000
- -------------------------------------------------------------------------
ReliaStar Financial Corp. 63,000 2,905,875
- -------------------------------------------------------------------------
Torchmark Corp. 28,000 988,750
- -------------------------------------------------------------------------
8,096,225
- -------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.60%
Progressive Corp. 23,000 3,895,625
- -------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 1.17%
Edwards (A.G.), Inc. 25,000 931,250
- -------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 27,000 1,189,688
- -------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 97,500 5,478,281
- -------------------------------------------------------------------------
7,599,219
- -------------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.69%
Federated Investors, Inc.-Class B 85,000 1,540,625
- -------------------------------------------------------------------------
T. Rowe Price Associates, Inc. 85,800 2,938,650
- -------------------------------------------------------------------------
4,479,275
- -------------------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.76%
Harley-Davidson, Inc. 94,000 4,453,250
- -------------------------------------------------------------------------
Speedway Motorsports, Inc.(a) 15,900 453,150
- -------------------------------------------------------------------------
4,906,400
- -------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.31%
Corning, Inc. 137,200 6,174,000
- -------------------------------------------------------------------------
Crane Co. 17,400 525,262
- -------------------------------------------------------------------------
Hillenbrand Industries, Inc. 21,500 1,222,813
- -------------------------------------------------------------------------
Pentair, Inc. 14,500 577,281
- -------------------------------------------------------------------------
8,499,356
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED) - 0.44%
Avery Dennison Corp. 23,600 $ 1,063,475
- -------------------------------------------------------------------------
Coflexip SA-ADR (France) 10,100 324,462
- -------------------------------------------------------------------------
Diebold, Inc. 40,800 1,456,050
- -------------------------------------------------------------------------
2,843,987
- -------------------------------------------------------------------------
NATURAL GAS - 0.37%
El Paso Energy Corp. 68,000 2,367,250
- -------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.12%
Herman Miller, Inc. 28,000 752,500
- -------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 1.54%
Baker Hughes, Inc. 85,000 1,503,438
- -------------------------------------------------------------------------
BJ Services Co.(a) 62,000 968,750
- -------------------------------------------------------------------------
Cooper Cameron Corp.(a) 60,000 1,470,000
- -------------------------------------------------------------------------
Core Laboratories N.V. (Netherlands)(a) 30,200 577,575
- -------------------------------------------------------------------------
Diamond Offshore Drilling, Inc. 40,000 947,500
- -------------------------------------------------------------------------
Global Industries Ltd.(a) 108,000 661,500
- -------------------------------------------------------------------------
Rowan Companies, Inc.(a) 80,000 800,000
- -------------------------------------------------------------------------
Smith International, Inc.(a) 50,000 1,259,375
- -------------------------------------------------------------------------
Transocean Offshore, Inc. 25,000 670,312
- -------------------------------------------------------------------------
Varco International, Inc.(a) 140,000 1,085,000
- -------------------------------------------------------------------------
9,943,450
- -------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.41%
Apache Corp. 67,000 1,695,938
- -------------------------------------------------------------------------
Santa Fe Energy Resources, Inc.(a) 80,000 590,000
- -------------------------------------------------------------------------
Stolt Comex Seaway, S.A. (United Kingdom)(a) 40,000 270,000
- -------------------------------------------------------------------------
Stolt Comex Seaway, S.A.-ADR (United Kingdom)(a) 20,000 112,500
- -------------------------------------------------------------------------
2,668,438
- -------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.29%
AES Corp.(a) 40,000 1,895,000
- -------------------------------------------------------------------------
PRODUCTS (NON-DURABLES) - 0.46%
Clorox Co. (The) 12,600 1,471,838
- -------------------------------------------------------------------------
Dial Corp. (The) 53,000 1,530,375
- -------------------------------------------------------------------------
3,002,213
- -------------------------------------------------------------------------
PUBLISHING - 0.38%
McGraw-Hill Companies, Inc. (The) 24,000 2,445,000
- -------------------------------------------------------------------------
RAILROADS - 0.38%
Kansas City Southern Industries, Inc. 50,000 2,459,375
- -------------------------------------------------------------------------
RESTAURANTS - 1.69%
Brinker International, Inc.(a) 82,000 2,367,750
- -------------------------------------------------------------------------
Outback Steakhouse, Inc.(a) 56,000 2,233,000
- -------------------------------------------------------------------------
Papa John's International, Inc.(a) 41,900 1,848,838
- -------------------------------------------------------------------------
Starbucks Corp.(a) 39,400 2,211,325
- -------------------------------------------------------------------------
Tricon Global Restaurants, Inc.(a) 45,000 2,255,625
- -------------------------------------------------------------------------
10,916,538
- -------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
31
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (BUILDING SUPPLIES) - 0.32%
Lowe's Companies, Inc. 40,200 $ 2,057,738
- -----------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 1.07%
Best Buy Co., Inc.(a) 21,000 1,288,875
- -----------------------------------------------------------------
CDW Computer Centers, Inc.(a) 38,500 3,693,594
- -----------------------------------------------------------------
Tech Data Corp.(a) 48,600 1,956,150
- -----------------------------------------------------------------
6,938,619
- -----------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.50%
Kohl's Corp.(a) 53,000 3,256,188
- -----------------------------------------------------------------
RETAIL (DISCOUNTERS) - 1.04%
Dollar Tree Stores, Inc.(a) 73,475 3,209,939
- -----------------------------------------------------------------
Family Dollar Stores, Inc. 126,000 2,772,000
- -----------------------------------------------------------------
Ross Stores, Inc. 20,000 787,500
- -----------------------------------------------------------------
6,769,439
- -----------------------------------------------------------------
RETAIL (DRUG STORES) - 0.80%
Rite Aid Corp. 104,560 5,182,255
- -----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.05%
Kroger Co.(a) 86,900 5,257,450
- -----------------------------------------------------------------
Safeway, Inc.(a) 25,400 1,547,812
- -----------------------------------------------------------------
6,805,262
- -----------------------------------------------------------------
RETAIL (SPECIALTY) - 3.25%
Amazon.com, Inc.(a) 6,500 2,088,125
- -----------------------------------------------------------------
Bed Bath & Beyond, Inc.(a) 112,000 3,822,000
- -----------------------------------------------------------------
Linens 'n Things, Inc.(a) 11,600 459,650
- -----------------------------------------------------------------
Michaels Stores, Inc.(a) 41,000 741,844
- -----------------------------------------------------------------
Office Depot, Inc.(a) 130,000 4,801,875
- -----------------------------------------------------------------
Staples, Inc.(a) 171,187 7,478,732
- -----------------------------------------------------------------
Williams-Sonoma, Inc.(a) 40,000 1,612,500
- -----------------------------------------------------------------
21,004,726
- -----------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 1.83%
Abercrombie & Fitch Co.-Class A(a) 33,300 2,355,975
- -----------------------------------------------------------------
Gap, Inc. (The) 43,575 2,451,094
- -----------------------------------------------------------------
Intimate Brands, Inc. 46,000 1,374,250
- -----------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 83,625 2,655,093
- -----------------------------------------------------------------
TJX Companies, Inc. 103,000 2,987,000
- -----------------------------------------------------------------
11,823,412
- -----------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.89%
Astoria Financial Corp. 30,000 1,372,500
- -----------------------------------------------------------------
Dime Bancorp, Inc. 106,000 2,802,375
- -----------------------------------------------------------------
GreenPoint Financial Corp. 45,000 1,580,625
- -----------------------------------------------------------------
5,755,500
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (ADVERTISING & MARKETING) - 2.06%
Interpublic Group of Companies, Inc. (The) 20,000 $ 1,595,000
- -------------------------------------------------------------------
Lamar Advertising Co.(a) 66,000 2,458,500
- -------------------------------------------------------------------
Omnicom Group, Inc. 103,300 5,991,400
- -------------------------------------------------------------------
Outdoor Systems, Inc.(a) 57,000 1,710,000
- -------------------------------------------------------------------
Snyder Communications, Inc.(a) 47,700 1,609,875
- -------------------------------------------------------------------
13,364,775
- -------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 2.87%
Apollo Group, Inc.(a) 65,500 2,218,813
- -------------------------------------------------------------------
ChoicePoint, Inc.(a) 24,500 1,580,250
- -------------------------------------------------------------------
Cintas Corp. 63,100 4,444,606
- -------------------------------------------------------------------
G & K Services, Inc.-Class A 15,000 798,750
- -------------------------------------------------------------------
IMS Health, Inc. 51,500 3,885,031
- -------------------------------------------------------------------
Service Corp. International 32,400 1,233,225
- -------------------------------------------------------------------
Stewart Enterprises, Inc.-Class A 107,500 2,391,875
- -------------------------------------------------------------------
Viad Corp. 60,000 1,822,500
- -------------------------------------------------------------------
Waddell & Reed Financial, Inc. 1,507 35,697
- -------------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class B 6,489 150,869
- -------------------------------------------------------------------
18,561,616
- -------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 1.15%
CIBER, Inc.(a) 25,000 698,437
- -------------------------------------------------------------------
Keane, Inc.(a) 49,700 1,984,893
- -------------------------------------------------------------------
Policy Management Systems Corp.(a) 35,000 1,767,500
- -------------------------------------------------------------------
SunGard Data Systems, Inc.(a) 75,200 2,984,500
- -------------------------------------------------------------------
7,435,330
- -------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 3.93%
Affiliated Computer Services, Inc.(a) 30,500 1,372,500
- -------------------------------------------------------------------
Billing Concepts Corp.(a) 58,500 643,500
- -------------------------------------------------------------------
Ceridian Corp.(a) 53,700 3,748,931
- -------------------------------------------------------------------
CSG Systems International, Inc.(a) 34,900 2,757,100
- -------------------------------------------------------------------
DST Systems, Inc.(a) 30,300 1,728,994
- -------------------------------------------------------------------
Equifax, Inc. 44,100 1,507,669
- -------------------------------------------------------------------
Fiserv, Inc.(a) 103,150 5,305,778
- -------------------------------------------------------------------
National Data Corp. 48,000 2,337,000
- -------------------------------------------------------------------
NOVA Corp.(a) 57,407 1,991,306
- -------------------------------------------------------------------
Paychex, Inc. 78,975 4,062,276
- -------------------------------------------------------------------
25,455,054
- -------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.21%
Robert Half International, Inc.(a) 30,400 1,358,500
- -------------------------------------------------------------------
SPECIALTY PRINTING - 0.28%
Valassis Communications, Inc.(a) 35,000 1,806,875
- -------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.23%
Metromedia Fiber Network, Inc.(a) 44,000 1,474,000
- -------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL APPRECIATION FUND
32
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 0.65%
Global TeleSystems Group, Inc.(a) 75,000 $ 4,181,250
- --------------------------------------------------------------------------
TELEPHONE - 1.07%
Century Telephone Enterprises, Inc. 64,600 4,360,500
- --------------------------------------------------------------------------
Cincinnati Bell, Inc. 37,800 1,429,312
- --------------------------------------------------------------------------
NTL, Inc. (United Kingdom)(a) 20,000 1,128,750
- --------------------------------------------------------------------------
6,918,562
- --------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.30%
Jones Apparel Group, Inc.(a) 52,500 1,158,281
- --------------------------------------------------------------------------
Tommy Hilfiger Corp.(a) 13,100 786,000
- --------------------------------------------------------------------------
1,944,281
- --------------------------------------------------------------------------
TEXTILES (HOME FURNISHINGS) - 0.25%
Shaw Industries, Inc. 67,000 1,624,750
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 1.28%
Allied Waste Industries, Inc.(a) 110,670 2,614,579
- --------------------------------------------------------------------------
Republic Services, Inc.(a) 50,000 921,875
- --------------------------------------------------------------------------
Waste Management, Inc. 101,675 4,740,597
- --------------------------------------------------------------------------
8,277,051
- --------------------------------------------------------------------------
Total Common Stocks (Cost $377,506,768) 567,719,235
- --------------------------------------------------------------------------
WARRANTS - 0.03%
Banks (Regional)
Golden State Bancorp, Litigation Wts., expiring
01/01/01 (Cost $227,318)(a) 40,000 182,500
- --------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
TIME DEPOSIT - 1.08%
Credit Communal De Belgium, 5.125%, 01/04/99
(Cost $7,000,000) $ 7,000,000 7,000,000
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT - 9.15%(b)
Goldman Sachs & Co., 4.40%, 01/04/99(c)
(Cost $59,251,734) 59,251,734 59,251,734
- --------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.98% 634,153,469
- --------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.02% 13,094,534
- --------------------------------------------------------------------------
NET ASSETS - 100.00% $647,248,003
==========================================================================
</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 insure its market value is at least 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Abbreviations:
ADR -- American Depositary Receipt
Wts. -- Warrants
See Notes to Financial Statements
AIM V.I. CAPITAL APPRECIATION FUND
33
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $443,985,820) $634,153,469
- ----------------------------------------------------------------------
Receivables for:
Investments sold 13,808,584
- ----------------------------------------------------------------------
Capital stock sold 677,286
- ----------------------------------------------------------------------
Dividends and interest 191,840
- ----------------------------------------------------------------------
Investment for deferred compensation plan 25,282
- ----------------------------------------------------------------------
Other assets 2,963
- ----------------------------------------------------------------------
Total assets 648,859,424
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 1,236,530
- ----------------------------------------------------------------------
Capital stock reacquired 13,206
- ----------------------------------------------------------------------
Deferred compensation plan 25,282
- ----------------------------------------------------------------------
Accrued advisory fees 317,257
- ----------------------------------------------------------------------
Accrued directors' fees 232
- ----------------------------------------------------------------------
Accrued administrative services fees 8,797
- ----------------------------------------------------------------------
Accrued operating expenses 10,117
- ----------------------------------------------------------------------
Total liabilities 1,611,421
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $647,248,003
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 25,689,529
- ----------------------------------------------------------------------
Net asset value, offering and redemption price per share $ 25.20
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 2,782,124
- ---------------------------------------------------------------------------
Dividends (net of $17,799 foreign withholding tax) 1,619,969
- ---------------------------------------------------------------------------
Total investment income 4,402,093
- ---------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,521,837
- ---------------------------------------------------------------------------
Administrative services fees 53,266
- ---------------------------------------------------------------------------
Custodian fees 104,218
- ---------------------------------------------------------------------------
Directors' fees and expenses 12,181
- ---------------------------------------------------------------------------
Other 88,482
- ---------------------------------------------------------------------------
Total expenses 3,779,984
- ---------------------------------------------------------------------------
Less: Expenses paid indirectly (9,472)
- ---------------------------------------------------------------------------
Net expenses 3,770,512
- ---------------------------------------------------------------------------
Net investment income 631,581
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 22,739,811
- ---------------------------------------------------------------------------
Foreign currencies 43,713
- ---------------------------------------------------------------------------
Option contracts 25,169
- ---------------------------------------------------------------------------
22,808,693
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities 78,385,559
- ---------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and
option contracts 101,194,252
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $101,825,833
===========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL APPRECIATION FUND
34
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 631,581 $ 914,009
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies and option contracts 22,808,693 16,155,941
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and foreign currencies 78,385,559 35,953,703
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 101,825,833 53,023,653
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (922,615) (536,874)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (16,345,246) (6,902,664)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 39,909,953 107,132,798
- ------------------------------------------------------------------------------
Net increase in net assets 124,467,925 152,716,913
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 522,780,078 370,063,165
- ------------------------------------------------------------------------------
End of year $647,248,003 $522,780,078
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $434,303,451 $394,408,721
- ------------------------------------------------------------------------------
Undistributed net investment income 700,362 876,543
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
option contracts 22,076,541 15,712,724
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and futures contracts 190,167,649 111,782,090
- ------------------------------------------------------------------------------
$647,248,003 $522,780,078
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Capital Appreciation Fund (the "Fund"). The Fund's investment
objective is to seek capital appreciation through investments in common stocks,
with emphasis on medium-sized and smaller emerging growth companies. Currently,
shares of the Fund are sold only to insurance company separate accounts to fund
the benefits of variable annuity contracts and variable life insurance
policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The following is a summary of the significant accounting policies followed by
the Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market (but
not including securities reported on the NASDAQ National Market System) is
valued at the mean between the last bid and asked prices based upon quotes
furnished by market makers for such securities. If a mean is not available,
as is the case in some foreign markets, the closing bid will be used absent
a last sales price. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date, or absent a
last sales price, at the mean of the closing bid and asked prices. Debt
obligations (including convertible bonds) are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as yield, type of issue, coupon rate
and maturity date. Securities for which market quotations are not readily
available or are questionable are valued at fair value as determined in good
faith by or under the supervision of the Company's officers in a manner
specifically authorized by the Board of Directors of the Company. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates are also generally
AIM V.I. CAPITAL APPRECIATION FUND
35
<PAGE>
determined prior to the close of the New York Stock Exchange. Occasionally,
events affecting the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of the New
York Stock Exchange which will not be reflected in the computation of the
Fund's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value as determined in good faith by or under the supervision of
the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1998
additional paid-in capital was decreased by $15,223, undistributed net
investment income was increased by $114,853 and undistributed net realized
gains was decreased by $99,630 in order to comply with the requirements of
the American Institute of Certified Public Accountants Statement of
Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contract is open, changes in the value of the
contract are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contract at the
end of each day's trading. Variation margin payments are made or received
depending upon whether unrealized gains or losses are incurred. When the
contracts are closed, the Fund recognizes a realized gain or loss equal to
the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
G. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $53,266 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
AIM V.I. CAPITAL APPRECIATION FUND
36
<PAGE>
During the year ended December 31, 1998, the Fund incurred legal fees of
$4,536 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $9,472 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $9,472 during the year ended
December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1998 was
$427,487,795 and $457,350,071, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $202,819,727
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (13,557,353)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $189,262,374
===========================================================================
</TABLE>
Cost of investments for tax purposes is $444,891,095.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Sold 4,333,736 $ 99,858,597 9,656,144 $202,278,514
- -------------------------------------------------------------------------------
Issued as reinvestment of
distributions 740,474 17,267,861 357,327 7,439,538
- -------------------------------------------------------------------------------
Reacquired (3,416,071) (77,216,505) (5,025,910) (102,585,254)
- -------------------------------------------------------------------------------
1,658,139 $ 39,909,953 4,987,561 $ 107,132,798
===============================================================================
</TABLE>
NOTE 7 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
-------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
<S> <C> <C>
Beginning of period -- $ --
- ----------------------------------------------
Written 1,092 271,645
- ----------------------------------------------
Closed (678) (154,318)
- ----------------------------------------------
Expired (244) (21,153)
- ----------------------------------------------
Exercised (170) (96,174)
- ----------------------------------------------
End of period -- $ --
==============================================
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, the
eleven months ended December 31, 1995, the year ended January 31, 1995, and
the period May 5, 1993 (date operations commenced) through January 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
----------------------------------------- -----------------
1998 1997 1996 1995 1995 1994
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58 $ 10.00
- ------------------------ -------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.02 0.03 0.02 0.04 0.05 --
- ------------------------ -------- -------- -------- -------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 4.12 2.58 2.89 4.46 (0.54) 2.59
- ------------------------ -------- -------- -------- -------- ------- -------
Total from investment
operations 4.14 2.61 2.91 4.50 (0.49) 2.59
- ------------------------ -------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net
investment income (0.04) (0.02) (0.03) -- (0.04) (0.01)
- ------------------------ -------- -------- -------- -------- ------- -------
Distributions from net
realized gains (0.65) (0.27) -- -- -- --
- ------------------------ -------- -------- -------- -------- ------- -------
Total distributions (0.69) (0.29) (0.03) -- (0.04) (0.01)
- ------------------------ -------- -------- -------- -------- ------- -------
Net asset value, end of
period $ 25.20 $ 21.75 $ 19.43 $ 16.55 $ 12.05 $ 12.58
======================== ======== ======== ======== ======== ======= =======
Total return(a) 19.30% 13.51% 17.58% 37.38% (3.91)% 25.90%
======================== ======== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $647,248 $522,642 $370,063 $212,152 $88,177 $35,354
======================== ======== ======== ======== ======== ======= =======
Ratio of expenses to
average net assets 0.67%(b) 0.68% 0.73% 0.75%(c) 0.84% 1.06%(c)
======================== ======== ======== ======== ======== ======= =======
Ratio of net investment
income to average net
assets 0.11%(b) 0.18% 0.18% 0.39%(c) 0.46% 0.07%(c)
======================== ======== ======== ======== ======== ======= =======
Portfolio turnover rate 83% 65% 59% 37% 81% 34%
======================== ======== ======== ======== ======== ======= =======
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $566,139,574.
(c) Annualized.
AIM V.I. CAPITAL APPRECIATION FUND
37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Capital Appreciation Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1998, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, the eleven month period ended December 31, 1995, the year
ended January 31, 1995, and the period May 5, 1993 (commencement of operations)
through January 31, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Capital Appreciation Fund, as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. CAPITAL APPRECIATION FUND
38
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND CONTENDS WITH STEEP DECLINE
IN SMALL-CAP STOCKS
A roundtable discussion with the Fund management team for AIM V.I. Capital
Development Fund for the period ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. SMALL-CAP STOCKS WERE IN A BEAR MARKET economic indicators, sparked a strong ---------------
FOR MUCH OF THE YEAR. HOW DID AIM V.I. rally in the stock market. The Dow soared
CAPITAL DEVELOPMENT FUND PERFORM? to a record high on November 23 and ended The Fund rebounded
A. The sharp sell-off in small-cap stocks the year up 18.15%.
from mid-April through early October 1998 in the fourth quarter of 1998,
took its toll on the Fund's performance. Q. HOW DID SMALL-CAP STOCKS FARE IN THIS
From the Fund's inception on May 1, 1998, ENVIRONMENT? posting a 19.19% total return for the
through the end of the year, cumulative A. For much of the reporting period, small-
total return was -7.51%. Over the same cap stocks were in the grip of a severe final three months of the year.
period, total return was-12.32% for the bear market, generally defined as a drop
Russell 2000 Index, which measures the in value of at least 20%. After hitting a ---------------
performance of small-cap stocks. record high on April 21, the Russell 2000
The Fund rebounded in the fourth Index lost 36.46% of its value by October because we are very optimistic about the
quarter of 1998, posting a 19.19% total 8, when it sank to its lowest level in long-term outlook for small-cap stocks.
return for the final three months of the more than two years. In the unsettled
year. market environment, investors favored more Q. HOW WAS THE FUND STRUCTURED?
liquid assets such as large-company stocks A. At the end of the year, consumer
Q. WHAT WERE MARKET CONDITIONS LIKE and U.S. Treasury bonds. cyclical stocks composed 24% of the
IN 1998? During the last three months of the portfolio, technology stocks, 24%; and
A. Early in the year, markets shook off year, however, small-cap stocks rallied health-care stocks, 13%.
initial concerns about the potential strongly, benefiting from the Fed's
impact of the economic turmoil in Asia and interest rate cuts. Investors also found Q. WHERE WAS YOUR EMPHASIS IN THE
soared to new heights in April. Although small-cap stocks attractive because CONSUMER-CYCLICAL SECTOR?
renewed fears about Asia's impact halted earnings growth projections for smaller A. Our focus was on retail stocks. For
the rally, large-cap stocks rebounded and companies remained in the double-digit most of the year, the nation's retailers
the Dow Jones Industrial Average (the range while the corresponding figures for benefited from healthy consumer spending,
Dow), an unmanaged composite of the larger companies were gravitating toward stemming from low unemployment and rising
performance of 30 large-company stocks, the single-digit level. Finally, small-cap wages. However, sales dipped in the summer
set a record in July. The Dow then lost stocks represented one of the best when foreign and domestic concerns caused
16.82% of its value between July 17 and bargains in the equity market as their stock markets to plummet, shaking consumer
October 8. Severe economic problems in prices relative to large-cap stocks were confidence. Sales revived around
Russia and Latin America as well as Asia, at their lowest levels in decades. Thanksgiving, then declined in December
combined with political controversy in the when much of the U.S. experienced balmy
United States, prompted the selloff. Q. HOW DID YOU REACT TO THE BEAR MARKET weather, curtail-
However, the market rebounded IN SMALL-CAP STOCKS?
impressively in October as the Dow posted A. The market downturn provided an
its best percentage gains for a single excellent opportunity to purchase the
month in more than 11 years. The Federal stocks of attractive companies at low
Reserve Board (the Fed) cut interest rates prices. In choosing stocks, we look at the
three times in the fall. These Fed moves, underlying fundamentals of companies,
combined with encouraging not the overall market. We endeavor to
own the best small-cap companies
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND 39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PORTFOLIO HOLDINGS more restrained. Pharmaceutical companies,
As of 12/31/98, based on total net assets which enjoyed robust earnings, continued
to offer a wide range of new products that
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES were enthusiastically received by a
health-conscious population.
1. SunGard Data Systems, Inc. 0.88% 1. Computer (Software & Services) 9.03% The Fund benefited from owning the
2. Linens 'N Things, Inc. 0.75 2. Services (Commercial & Consumer) 6.65 stocks of Advanced Paradigm, which
3. CSG Systems International, 3. Retail (Specialty) 5.10 provides pharmacy benefit management
Inc. 0.75 4. Services (Data Processing) 4.24 services for health plans; Watson
4. BISYS Group, Inc. 0.73 5. Health Care (Specialized Services) 3.40 Pharmaceuticals, which offers generic
5. Medical Manager Corp. 0.69 6. Health Care (Medical Products versions of brand-name drugs; and Barr
6. Comverse Technology, Inc. 0.67 & Supplies) 3.14 Laboratories, which distributes a wide
7. Galileo Technology Ltd. 0.60 7. Services (Advertising/Marketing) 2.94 range of prescription drugs, including
8. Casella Waste Systems, Inc. 0.59 8. Services (Computer Systems) 2.56 antibiotics, cancer treatments and
9. Pegasus Systems, Inc. 0.57 9. Health Care (Drugs-Generic cardiovascular agents.
10. American Bank Note & Other) 2.37
Holographics, Inc. 0.55 10. Manufacturing (Specialized) 2.36 Q. WHAT IS YOUR OUTLOOK?
A. We believe there are several reasons
Please keep in mind that the Fund's portfolio composition is subject to change to be optimistic about small-cap stocks.
and there is no assurance the Fund will continue to hold any particular In recent years, after the Fed has
security. embarked on a series of interest-rate
cuts, small-cap stocks have been among the
ing demand for cold-weather items. Still, new medium. Technology companies also top-performing equity classes. While past
holiday sales were robust, largely because benefited from consumer demand for performance cannot guarantee comparable
of the growth in online Internet sales. computers costing less than $1,000, the future results, we believe the Fed's
Retail stocks that performed well for need to upgrade computers to avoid recent actions could have a positive
the Fund included Linens 'N Things, the complications associated with the so- impact on the long-term performance of
nation's second largest household-goods called "millennium bug," and the small-cap stocks.
chain, which emphasizes low-priced, brand- introduction of faster and more powerful Moreover, the valuations of small-cap
name merchandise; Williams-Sonoma, a chips and software. stocks relative to large-cap stocks are
leading marketer of accessories for Our technology holdings included the very compelling. And while profits for the
kitchens, bathrooms, bedrooms and gardens; BISYS Group, which provides outsourcing largest companies are dropping, they
and Micro Warehouse, which sells computer services for more than 6,000 financial remain robust for smaller companies. Since
products through catalogs, telemarketing institutions and corporations throughout smaller companies conduct most of their
and the Internet. the U.S.; SunGard Data Systems, which business in the United States, their
provides processing and disaster recovery earnings are less susceptible to economic
Q. HOW DID TECHNOLOGY STOCKS PERFORM? services for banks and mutual-fund downturns abroad. We believe if these
A. Despite volatility, technology stocks companies; and Intuit, which is a leading trends continue, small-cap stocks could
were the top-performing equity class in manufacturer of personal finance software. continue to attract investors.
1998. Investors flocked to Internet-
related companies as they considered the Q. WHAT ABOUT HEALTH-CARE STOCKS?
possibilities for explosive growth in the A. While pharmaceutical-company stocks
skyrocketed, the performance of other
stocks within the health-care sector was
</TABLE>
40 AIM V.I. CAPITAL DEVELOPMENT FUND
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 87.38%
AEROSPACE/DEFENSE - 0.78%
Gulfstream Aerospace Corp.(a) 100 $ 5,325
- --------------------------------------------------------------------
Hawk Corp.(a) 200 1,675
- --------------------------------------------------------------------
Kroll-O'Gara Co. (The)(a) 400 15,775
- --------------------------------------------------------------------
TriStar Aerospace Co.(a) 300 2,100
- --------------------------------------------------------------------
24,875
- --------------------------------------------------------------------
AIRLINES - 0.43%
Atlantic Coast Airlines Holdings(a) 400 10,000
- --------------------------------------------------------------------
Midway Airlines, Corp.(a) 300 3,600
- --------------------------------------------------------------------
13,600
- --------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.69%
Keystone Automotive Industries, Inc.(a) 500 10,469
- --------------------------------------------------------------------
Stoneridge, Inc.(a) 500 11,375
- --------------------------------------------------------------------
21,844
- --------------------------------------------------------------------
BANKS (REGIONAL) - 1.27%
Banco Santandr Puerto Rico(a) 300 6,581
- --------------------------------------------------------------------
Bank United Corp.-Class A 200 7,850
- --------------------------------------------------------------------
Golden State Bancorp, Inc.(a) 600 9,975
- --------------------------------------------------------------------
Independence Community Bank Corp. 400 6,375
- --------------------------------------------------------------------
North Fork Bancorporation, Inc. 400 9,575
- --------------------------------------------------------------------
40,356
- --------------------------------------------------------------------
BEVERAGES (ALCOHOLIC) - 0.65%
Beringer Wine Estates-Class B(a) 200 8,938
- --------------------------------------------------------------------
Canandaigua Wine Co., Inc.-Class A(a) 200 11,563
- --------------------------------------------------------------------
20,501
- --------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.15%
Triarc Companies, Inc.(a) 300 4,800
- --------------------------------------------------------------------
BIOTECHNOLOGY - 0.54%
IDEXX Laboratories, Inc.(a) 300 8,072
- --------------------------------------------------------------------
Pharmaceutical Product Development, Inc.(a) 300 9,019
- --------------------------------------------------------------------
17,091
- --------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.29%
Capstar Broadcasting Corp.-Class A(a) 400 9,150
- --------------------------------------------------------------------
Chancellor Media Corp.(a) 200 9,575
- --------------------------------------------------------------------
Cox Radio, Inc.-Class A(a) 200 8,450
- --------------------------------------------------------------------
Emmis Broadcasting Corp.-Class A(a) 300 13,013
- --------------------------------------------------------------------
Hearst-Argyle Television, Inc.(a) 100 3,300
- --------------------------------------------------------------------
Heftel Broadcasting Corp.(a) 200 9,850
- --------------------------------------------------------------------
Metro Networks, Inc.(a) 200 8,525
- --------------------------------------------------------------------
Univision Communications, Inc.(a) 300 10,856
- --------------------------------------------------------------------
72,719
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
BUILDING MATERIAL - 0.27%
Pameco Corp.(a) 200 $ 2,313
- ----------------------------------------------------------
White Cap Industries, Inc.(a) 400 6,100
- ----------------------------------------------------------
8,413
- ----------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.71%
ADC Telecommunications, Inc.(a) 300 10,425
- ----------------------------------------------------------
Comverse Technology, Inc.(a) 300 21,300
- ----------------------------------------------------------
Excel Switching Corp.(a) 300 11,400
- ----------------------------------------------------------
NorthEast Optic Network, Inc.(a) 600 6,225
- ----------------------------------------------------------
Tekelec(a) 300 4,969
- ----------------------------------------------------------
54,319
- ----------------------------------------------------------
COMPUTER (HARDWARE) - 0.50%
Bell & Howell Co.(a) 300 11,344
- ----------------------------------------------------------
IDX Systems Corp.(a) 100 4,400
- ----------------------------------------------------------
15,744
- ----------------------------------------------------------
COMPUTER (NETWORKING) - 0.76%
Ascend Communications, Inc.(a) 100 6,575
- ----------------------------------------------------------
FORE Systems, Inc.(a) 700 12,819
- ----------------------------------------------------------
Fvc.com, Inc.(a) 300 4,725
- ----------------------------------------------------------
24,119
- ----------------------------------------------------------
COMPUTER (PERIPHERALS) - 0.74%
Actel Corp.(a) 200 4,000
- ----------------------------------------------------------
Quantum Corp.(a) 400 8,500
- ----------------------------------------------------------
SMART Modular Technologies, Inc.(a) 400 11,100
- ----------------------------------------------------------
23,600
- ----------------------------------------------------------
COMPUTER (SOFTWARE & SERVICES) - 8.88%
Avant! Corp.(a) 200 3,200
- ----------------------------------------------------------
Axent Technologies, Inc.(a) 200 6,113
- ----------------------------------------------------------
Best Software, Inc.(a) 550 13,063
- ----------------------------------------------------------
Cadence Design Systems, Inc.(a) 400 11,900
- ----------------------------------------------------------
Complete Business Solutions, Inc.(a) 400 13,550
- ----------------------------------------------------------
Concord Communications, Inc.(a) 100 5,675
- ----------------------------------------------------------
Concord EFS, Inc.(a) 300 12,712
- ----------------------------------------------------------
DA Consulting Group, Inc.(a) 300 6,562
- ----------------------------------------------------------
Datastream Systems, Inc.(a) 600 6,900
- ----------------------------------------------------------
Dendrite International, Inc.(a) 200 4,994
- ----------------------------------------------------------
Electronic Arts, Inc.(a) 100 5,612
- ----------------------------------------------------------
HNC Software, Inc.(a) 300 12,131
- ----------------------------------------------------------
Hyperion Solutions Corp.(a) 190 3,420
- ----------------------------------------------------------
InfoCure Corp.(a) 500 16,375
- ----------------------------------------------------------
Intuit, Inc.(a) 200 14,500
- ----------------------------------------------------------
Learning Company, Inc. (The)(a) 150 3,891
- ----------------------------------------------------------
Manhattan Associates, Inc.(a) 100 2,725
- ----------------------------------------------------------
Mastech Corp.(a) 400 11,450
- ----------------------------------------------------------
Medical Manager Corp.(a) 700 21,963
- ----------------------------------------------------------
Mercury Interactive Corp.(a) 200 12,650
- ----------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
41
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
COMPUTER (SOFTWARE & SERVICES) -- (CONTINUED)
Network Associates, Inc.(a) 200 $ 13,250
- -------------------------------------------------------------------
Platinum Technology, Inc.(a) 400 7,650
- -------------------------------------------------------------------
Rational Software Corp.(a) 300 7,950
- -------------------------------------------------------------------
Sterling Commerce, Inc.(a) 300 13,500
- -------------------------------------------------------------------
Synopsys, Inc.(a) 200 10,850
- -------------------------------------------------------------------
Transaction Systems Architects, Inc.-Class A(a) 200 10,000
- -------------------------------------------------------------------
Unigraphics Solutions, Inc.(a) 300 4,350
- -------------------------------------------------------------------
USWeb Corp.(a) 400 10,550
- -------------------------------------------------------------------
Visio Corp.(a) 300 10,969
- -------------------------------------------------------------------
Walker Interactive Systems, Inc.(a) 500 3,375
- -------------------------------------------------------------------
281,830
- -------------------------------------------------------------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.39%
Blyth Industries, Inc.(a) 400 12,500
- -------------------------------------------------------------------
CONSUMER FINANCE - 0.60%
American Capital Strategies, Ltd. 200 3,450
- -------------------------------------------------------------------
AmeriCredit Corp.(a) 700 9,669
- -------------------------------------------------------------------
Cash America International, Inc. 300 4,556
- -------------------------------------------------------------------
United Panam Financial Corp.(a) 300 1,256
- -------------------------------------------------------------------
18,931
- -------------------------------------------------------------------
CONTAINERS (METAL & GLASS) - 0.39%
Silgan Holdings, Inc.(a) 450 12,509
- -------------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 0.91%
JP Foodservice, Inc.(a) 200 9,800
- -------------------------------------------------------------------
McKesson Corp. 100 7,906
- -------------------------------------------------------------------
Performance Food Group Co.(a) 400 11,250
- -------------------------------------------------------------------
28,956
- -------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.19%
AFC Cable Systems, Inc.(a) 200 6,725
- -------------------------------------------------------------------
American Power Conversion Corp.(a) 200 9,688
- -------------------------------------------------------------------
PCD, Inc.(a) 200 2,600
- -------------------------------------------------------------------
Pinnacle Systems, Inc.(a) 200 7,150
- -------------------------------------------------------------------
SCI Systems, Inc.(a) 200 11,550
- -------------------------------------------------------------------
37,713
- -------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.42%
Quanta Services, Inc.(a) 600 13,238
- -------------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 1.03%
Apex PC Solutions, Inc.(a) 200 5,775
- -------------------------------------------------------------------
Microchip Technology, Inc.(a) 300 11,100
- -------------------------------------------------------------------
Sipex Corp.(a) 300 10,538
- -------------------------------------------------------------------
Unitrode Corp.(a) 300 5,250
- -------------------------------------------------------------------
32,663
- -------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
ENTERTAINMENT - 0.96%
Loews Cineplex Entertainment Corp.(a) 800 $ 8,100
- ------------------------------------------------------------------
Metro-Goldwyn-Mayer, Inc.(a) 458 6,040
- ------------------------------------------------------------------
Metromedia International Group, Inc.(a) 600 3,263
- ------------------------------------------------------------------
SFX Entertainment, Inc.-Class A(a) 200 10,975
- ------------------------------------------------------------------
The Sports Club Co., Inc.(a) 500 1,969
- ------------------------------------------------------------------
30,347
- ------------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.54%
Etec Systems, Inc.(a) 200 8,000
- ------------------------------------------------------------------
Photronics, Inc.(a) 200 4,794
- ------------------------------------------------------------------
Teradyne, Inc.(a) 100 4,238
- ------------------------------------------------------------------
17,032
- ------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.02%
FirstCity Financial Corp.(a) 300 3,881
- ------------------------------------------------------------------
Hamilton Bancorp, Inc.(a) 200 5,337
- ------------------------------------------------------------------
Medallion Financial Corp. 400 5,725
- ------------------------------------------------------------------
PMI Group, Inc. (The) 100 4,938
- ------------------------------------------------------------------
Rock Financial Corp. 200 2,600
- ------------------------------------------------------------------
SEI Investments Co. 100 9,938
- ------------------------------------------------------------------
32,419
- ------------------------------------------------------------------
FOODS - 1.63%
American Italian Pasta Co.-Class A(a) 450 11,869
- ------------------------------------------------------------------
International Home Foods, Inc.(a) 600 10,125
- ------------------------------------------------------------------
Keebler Foods Co.(a) 300 11,288
- ------------------------------------------------------------------
Suiza Foods Corp.(a) 200 10,187
- ------------------------------------------------------------------
Universal Foods Corp. 300 8,231
- ------------------------------------------------------------------
51,700
- ------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.30%
Harrah's Entertainment, Inc.(a) 300 4,706
- ------------------------------------------------------------------
International Game Technology 200 4,863
- ------------------------------------------------------------------
9,569
- ------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 0.40%
Allergan, Inc. 100 6,475
- ------------------------------------------------------------------
IVAX Corp.(a) 500 6,219
- ------------------------------------------------------------------
12,694
- ------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 2.37%
Barr Laboratories, Inc.(a) 300 14,400
- ------------------------------------------------------------------
Dura Pharmaceuticals, Inc.(a) 600 9,113
- ------------------------------------------------------------------
Forest Laboratories, Inc.(a) 200 10,637
- ------------------------------------------------------------------
Jones Medical Industries, Inc. 300 10,950
- ------------------------------------------------------------------
Mylan Laboratories, Inc. 400 12,600
- ------------------------------------------------------------------
Parexel International Corp.(a) 200 5,000
- ------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 200 12,575
- ------------------------------------------------------------------
75,275
- ------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
42
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.52%
Health Management Associates, Inc.-Class A(a) 400 $ 8,650
- -----------------------------------------------------------------
New American Healthcare Corp.(a) 700 7,831
- -----------------------------------------------------------------
16,481
- -----------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.33%
Sunrise Assisted Living, Inc.(a) 200 10,375
- -----------------------------------------------------------------
HEALTH CARE (MANAGED CARE) - 0.64%
Alternative Living Services, Inc.(a) 200 6,850
- -----------------------------------------------------------------
Express Scripts, Inc.-Class A(a) 200 13,425
- -----------------------------------------------------------------
20,275
- -----------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.14%
Biomet, Inc. 200 8,050
- -----------------------------------------------------------------
Coopers Companies, Inc.(a) 400 8,275
- -----------------------------------------------------------------
Cyberonics, Inc.(a) 300 4,050
- -----------------------------------------------------------------
DVI, Inc.(a) 300 5,438
- -----------------------------------------------------------------
Henry Schein, Inc.(a) 300 13,425
- -----------------------------------------------------------------
Lifecore Biomedical, Inc.(a) 400 4,100
- -----------------------------------------------------------------
Maxxim Medical, Inc.(a) 300 8,925
- -----------------------------------------------------------------
MiniMed, Inc.(a) 100 10,475
- -----------------------------------------------------------------
PSS World Medical, Inc.(a) 500 11,500
- -----------------------------------------------------------------
Serologicals Corp.(a) 300 9,000
- -----------------------------------------------------------------
Steris Corp.(a) 100 2,843
- -----------------------------------------------------------------
Sybron International Corp.(a) 500 13,594
- -----------------------------------------------------------------
99,675
- -----------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 3.40%
Advance Paradigm, Inc.(a) 400 14,000
- -----------------------------------------------------------------
Capital Senior Living Corp.(a) 300 4,181
- -----------------------------------------------------------------
Covance, Inc.(a) 200 5,825
- -----------------------------------------------------------------
First Consulting Group, Inc.(a) 500 10,250
- -----------------------------------------------------------------
MAXIMUS, Inc.(a) 400 14,800
- -----------------------------------------------------------------
Ocular Sciences, Inc.(a) 300 8,025
- -----------------------------------------------------------------
Omnicare, Inc. 200 6,950
- -----------------------------------------------------------------
Orthodontic Centers of America, Inc.(a) 600 11,663
- -----------------------------------------------------------------
PharMerica, Inc.(a) 400 2,400
- -----------------------------------------------------------------
Renal Care Group, Inc.(a) 200 5,762
- -----------------------------------------------------------------
Renex Corp.(a) 300 2,175
- -----------------------------------------------------------------
Superior Consultant Holdings Corp.(a) 200 8,700
- -----------------------------------------------------------------
Ventana Medical Systems, Inc.(a) 600 12,975
- -----------------------------------------------------------------
107,706
- -----------------------------------------------------------------
HOUSEHOLD FURNITURE & APPLIANCES - 0.18%
Service Experts, Inc.(a) 200 5,850
- -----------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.18%
Dial Corp. (The) 200 5,775
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEWARES - 0.35%
Central Garden and Pet Co.(a) 250 $ 3,594
- ---------------------------------------------------------------
Helen of Troy Ltd.(a) 200 2,937
- ---------------------------------------------------------------
Windmere-Durable Holdings, Inc.(a) 600 4,650
- ---------------------------------------------------------------
11,181
- ---------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.79%
Healthcare Recoveries, Inc.(a) 700 11,900
- ---------------------------------------------------------------
Nationwide Financial Services, Inc.-Class A 200 10,338
- ---------------------------------------------------------------
PAULA Financial 300 2,812
- ---------------------------------------------------------------
25,050
- ---------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.27%
Horace Mann Educators Corp. 300 8,550
- ---------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 1.44%
Amerin Corp.(a) 350 8,269
- ---------------------------------------------------------------
CMAC Investment Corp. 100 4,594
- ---------------------------------------------------------------
CNA Surety Corp. 500 7,875
- ---------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 200 7,788
- ---------------------------------------------------------------
Fidelity National Financial, Inc. 220 6,710
- ---------------------------------------------------------------
HCC Insurance Holdings, Inc. 300 5,287
- ---------------------------------------------------------------
Reliance Group Holdings, Inc. 400 5,150
- ---------------------------------------------------------------
45,673
- ---------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.57%
EVEREN Capital Corp. 400 9,100
- ---------------------------------------------------------------
Hambrecht & Quist Group(a) 400 9,075
- ---------------------------------------------------------------
18,175
- ---------------------------------------------------------------
INVESTMENT MANAGEMENT - 1.06%
Affiliated Managers Group, Inc.(a) 500 14,938
- ---------------------------------------------------------------
Conning Corp. 100 2,075
- ---------------------------------------------------------------
Knight/Trimark Group, Inc.-Class A(a) 700 16,756
- ---------------------------------------------------------------
33,769
- ---------------------------------------------------------------
LAND DEVELOPMENT - 0.12%
Silverleaf Resorts, Inc.(a) 400 3,725
- ---------------------------------------------------------------
LEISURE TIME (PRODUCTS) - 0.79%
Family Golf Centers, Inc.(a) 400 7,900
- ---------------------------------------------------------------
GTECH Holdings Corp.(a) 200 5,125
- ---------------------------------------------------------------
International Speedway Corp.-Class A 300 12,150
- ---------------------------------------------------------------
25,175
- ---------------------------------------------------------------
LODGING-HOTELS - 0.55%
Prime Hospitality Corp.(a) 400 4,225
- ---------------------------------------------------------------
Royal Caribbean Cruises Ltd. 300 11,100
- ---------------------------------------------------------------
Vail Resorts, Inc.(a) 100 2,200
- ---------------------------------------------------------------
17,525
- ---------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
43
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (SPECIALIZED) - 2.36%
Alpine Group, Inc. (The)(a) 300 $ 4,500
- ----------------------------------------------------------------
American Bank Note Holographics, Inc.(a) 1,000 17,500
- ----------------------------------------------------------------
Armor Holdings, Inc.(a) 200 2,288
- ----------------------------------------------------------------
First Years, Inc. (The) 700 11,068
- ----------------------------------------------------------------
Howmet International, Inc.(a) 600 9,675
- ----------------------------------------------------------------
Mettler-Toledo International, Inc.(a) 400 11,225
- ----------------------------------------------------------------
Superior TeleCom, Inc. 200 9,450
- ----------------------------------------------------------------
US Filter Corp.(a) 300 6,862
- ----------------------------------------------------------------
U.S.A. Floral Products, Inc.(a) 200 2,300
- ----------------------------------------------------------------
74,868
- ----------------------------------------------------------------
METAL FABRICATORS - 0.22%
Metals USA, Inc.(a) 700 6,825
- ----------------------------------------------------------------
NATURAL GAS - 0.11%
KN Energy, Inc. 100 3,638
- ----------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.70%
Daisytek International Corp.(a) 400 7,600
- ----------------------------------------------------------------
Knoll, Inc.(a) 200 5,925
- ----------------------------------------------------------------
School Specialty, Inc.(a) 400 8,550
- ----------------------------------------------------------------
22,075
- ----------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 0.30%
Cal Dive International, Inc.(a) 200 4,150
- ----------------------------------------------------------------
Newpark Resources, Inc.(a) 800 5,450
- ----------------------------------------------------------------
9,600
- ----------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.46%
Anadarko Petroleum Corp. 300 9,263
- ----------------------------------------------------------------
Apache Corp. 300 7,594
- ----------------------------------------------------------------
Devon Energy Corp. 300 9,206
- ----------------------------------------------------------------
Newfield Exploration Co.(a) 100 2,087
- ----------------------------------------------------------------
Noble Affiliates, Inc. 200 4,925
- ----------------------------------------------------------------
Ocean Energy, Inc.(a) 200 1,262
- ----------------------------------------------------------------
Snyder Oil Corp. 500 6,656
- ----------------------------------------------------------------
Union Pacific Resources Group, Inc. 600 5,438
- ----------------------------------------------------------------
46,431
- ----------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.06%
Wausau-Mosinee Paper Corp. 100 1,768
- ----------------------------------------------------------------
PERSONAL CARE - 1.52%
Chattem, Inc.(a) 300 14,363
- ----------------------------------------------------------------
NBTY, Inc.(a) 700 4,988
- ----------------------------------------------------------------
Playtex Products, Inc.(a) 600 9,637
- ----------------------------------------------------------------
Rexall Sundown, Inc.(a) 400 5,600
- ----------------------------------------------------------------
Steiner Leisure Ltd.(a) 300 9,600
- ----------------------------------------------------------------
Twinlab Corp.(a) 300 3,937
- ----------------------------------------------------------------
48,125
- ----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PUBLISHING - 0.93%
IDG Books Worldwide, Inc.-Class A(a) 700 $ 12,075
- -----------------------------------------------------------------
Petersen Companies, Inc. (The)-Class A(a) 200 6,775
- -----------------------------------------------------------------
Scholastic Corp.(a) 200 10,725
- -----------------------------------------------------------------
29,575
- -----------------------------------------------------------------
RAILROADS - 0.31%
Kansas City Southern Industries, Inc. 200 9,837
- -----------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 1.96%
AMRESCO Capital Trust, Inc. 350 3,325
- -----------------------------------------------------------------
Apartment Investment & Management Co.-Class A 200 7,438
- -----------------------------------------------------------------
CarrAmerica Realty Corp. 200 4,800
- -----------------------------------------------------------------
CCA Prison Realty Trust 300 6,150
- -----------------------------------------------------------------
Colonial Properties Trust 200 5,325
- -----------------------------------------------------------------
Corporate Office Properties Trust, Inc. 600 4,275
- -----------------------------------------------------------------
Correctional Properties Trust 400 7,225
- -----------------------------------------------------------------
Kilroy Realty Corp. 300 6,900
- -----------------------------------------------------------------
Manufactured Home Communities, Inc. 300 7,519
- -----------------------------------------------------------------
MeriStar Hospitality Corp. 200 3,712
- -----------------------------------------------------------------
Weeks Corp. 200 5,637
- -----------------------------------------------------------------
62,306
- -----------------------------------------------------------------
RESTAURANTS - 1.49%
Avado Brands, Inc. 600 4,988
- -----------------------------------------------------------------
Brinker International, Inc.(a) 500 14,438
- -----------------------------------------------------------------
CEC Entertainment, Inc.(a) 350 9,712
- -----------------------------------------------------------------
Dave & Buster's, Inc.(a) 300 6,918
- -----------------------------------------------------------------
Starbucks Corp.(a) 200 11,225
- -----------------------------------------------------------------
47,281
- -----------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 0.43%
CDW Computer Centers, Inc.(a) 100 9,593
- -----------------------------------------------------------------
Tech Data Corp.(a) 100 4,025
- -----------------------------------------------------------------
13,618
- -----------------------------------------------------------------
RETAIL (DISCOUNTERS) - 0.47%
Family Dollar Stores, Inc. 600 13,200
- -----------------------------------------------------------------
K & G Men's Center, Inc.(a) 200 1,775
- -----------------------------------------------------------------
14,975
- -----------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.18%
American Stores Co. 200 7,388
- -----------------------------------------------------------------
BJ's Wholesale Club, Inc.(a) 200 9,262
- -----------------------------------------------------------------
Whole Foods Market, Inc.(a) 200 9,675
- -----------------------------------------------------------------
Wild Oats Markets, Inc.(a) 350 11,025
- -----------------------------------------------------------------
37,350
- -----------------------------------------------------------------
RETAIL (HOME SHOPPING) - 0.43%
Micro Warehouse, Inc.(a) 400 13,525
- -----------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
44
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (SPECIALTY) - 5.10%
Casey's General Stores, Inc. 200 $ 2,606
- ------------------------------------------------------------
CSK Auto Corp.(a) 600 16,013
- ------------------------------------------------------------
Electronics Boutique Holdings Corp.(a) 400 8,150
- ------------------------------------------------------------
Group 1 Automotive, Inc.(a) 200 5,200
- ------------------------------------------------------------
Guitar Center, Inc.(a) 300 7,388
- ------------------------------------------------------------
Hibbett Sporting Goods, Inc.(a) 300 7,275
- ------------------------------------------------------------
Hot Topic, Inc.(a) 100 1,288
- ------------------------------------------------------------
Just for Feet, Inc.(a) 300 5,213
- ------------------------------------------------------------
Linens 'N Things, Inc.(a) 600 23,775
- ------------------------------------------------------------
Lithia Motors, Inc.-Class A(a) 300 4,950
- ------------------------------------------------------------
Michaels Stores, Inc.(a) 300 5,428
- ------------------------------------------------------------
Musicland Stores Corp.(a) 600 8,962
- ------------------------------------------------------------
PETsMART, Inc.(a) 400 4,400
- ------------------------------------------------------------
Pier 1 Imports, Inc.(a) 300 2,906
- ------------------------------------------------------------
Rainbow Rentals, Inc.(a) 300 2,962
- ------------------------------------------------------------
Rent-Way, Inc.(a) 376 9,151
- ------------------------------------------------------------
Renters Choice, Inc.(a) 400 12,700
- ------------------------------------------------------------
Select Comfort Corp.(a) 100 2,643
- ------------------------------------------------------------
Williams-Sonoma, Inc.(a) 400 16,125
- ------------------------------------------------------------
Zale Corp.(a) 450 14,513
- ------------------------------------------------------------
161,648
- ------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.51%
Abercrombie & Fitch Co.-Class A(a) 100 7,075
- ------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 200 6,350
- ------------------------------------------------------------
Stage Stores, Inc.(a) 300 2,812
- ------------------------------------------------------------
16,237
- ------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.27%
Allied Capital Corp. 500 8,656
- ------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 2.94%
Abacus Direct Corp.(a) 100 4,550
- ------------------------------------------------------------
Acxiom Corp.(a) 420 13,020
- ------------------------------------------------------------
Forrester Research, Inc.(a) 200 8,750
- ------------------------------------------------------------
HA-LO Industries, Inc.(a) 300 11,288
- ------------------------------------------------------------
Information Resources, Inc.(a) 200 2,037
- ------------------------------------------------------------
Lamar Advertising Co.(a) 450 16,762
- ------------------------------------------------------------
Market Facts, Inc.(a) 300 7,800
- ------------------------------------------------------------
Nielsen Media Research 333 5,994
- ------------------------------------------------------------
Snyder Communications, Inc.(a) 300 10,125
- ------------------------------------------------------------
Young & Rubicam, Inc.(a) 400 12,950
- ------------------------------------------------------------
93,276
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (COMMERCIAL & CONSUMER) - 6.65%
ABR Information Services, Inc.(a) 500 $ 9,812
- -------------------------------------------------------------
Advantage Learning Systems, Inc.(a) 100 6,575
- -------------------------------------------------------------
Apollo Group, Inc.(a) 400 13,550
- -------------------------------------------------------------
Avis Rent A Car, Inc.(a) 300 7,256
- -------------------------------------------------------------
Bright Horizons Family Solutions, Inc.(a) 400 10,800
- -------------------------------------------------------------
Career Education Corp.(a) 100 3,000
- -------------------------------------------------------------
F.Y.I., Inc.(a) 300 9,600
- -------------------------------------------------------------
G & K Services, Inc.-Class A 100 5,325
- -------------------------------------------------------------
Galileo International, Inc. 300 13,050
- -------------------------------------------------------------
Hertz Corp.-Class A 200 9,125
- -------------------------------------------------------------
INSpire Insurance Solutions, Inc.(a) 300 5,512
- -------------------------------------------------------------
Iron Mountain, Inc.(a) 350 12,622
- -------------------------------------------------------------
LaSalle Partners, Inc.(a) 100 2,944
- -------------------------------------------------------------
MemberWorks, Inc.(a) 200 5,900
- -------------------------------------------------------------
Metzler Group, Inc.(a) 300 14,606
- -------------------------------------------------------------
Pegasus Systems, Inc.(a) 500 18,000
- -------------------------------------------------------------
Pittston Brink's Group 100 3,188
- -------------------------------------------------------------
Primark Corp.(a) 200 5,425
- -------------------------------------------------------------
Protection One, Inc. 900 7,706
- -------------------------------------------------------------
Regis Corp. 300 12,000
- -------------------------------------------------------------
Strayer Education, Inc. 100 3,525
- -------------------------------------------------------------
Sylvan Learning Systems, Inc.(a) 300 9,150
- -------------------------------------------------------------
Trammell Crow Co.(a) 100 2,800
- -------------------------------------------------------------
Travel Services International, Inc.(a) 500 15,250
- -------------------------------------------------------------
United Road Services, Inc.(a) 100 1,838
- -------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class A 100 2,369
- -------------------------------------------------------------
210,928
- -------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 2.56%
Cotelligent Group, Inc.(a) 300 6,394
- -------------------------------------------------------------
Insight Enterprises, Inc.(a) 250 12,719
- -------------------------------------------------------------
Keane, Inc.(a) 100 3,993
- -------------------------------------------------------------
Policy Management Systems Corp.(a) 300 15,150
- -------------------------------------------------------------
SunGard Data Systems, Inc.(a) 700 27,781
- -------------------------------------------------------------
Sykes Enterprises, Inc.(a) 500 15,250
- -------------------------------------------------------------
81,287
- -------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
45
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SERVICES (DATA PROCESSING) - 3.94%
Billing Concepts Corp.(a) 300 $ 3,300
- -------------------------------------------------------------------------
BISYS Group, Inc.(a) 450 23,231
- -------------------------------------------------------------------------
Computer Horizons Corp.(a) 300 7,988
- -------------------------------------------------------------------------
CSG Systems International, Inc.(a) 300 23,700
- -------------------------------------------------------------------------
DST Systems, Inc.(a) 100 5,706
- -------------------------------------------------------------------------
Fiserv, Inc.(a) 200 10,288
- -------------------------------------------------------------------------
4Front Software International, Inc.(a) 800 8,850
- -------------------------------------------------------------------------
Lason Holdings, Inc.(a) 200 11,637
- -------------------------------------------------------------------------
MedQuist, Inc.(a) 200 7,900
- -------------------------------------------------------------------------
NOVA Corp.(a) 300 10,406
- -------------------------------------------------------------------------
Transaction Network Services, Inc.(a) 600 12,037
- -------------------------------------------------------------------------
125,043
- -------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.77%
Labor Ready, Inc.(a) 400 7,875
- -------------------------------------------------------------------------
Metamor Worldwide, Inc.(a) 400 10,000
- -------------------------------------------------------------------------
Syntel, Inc.(a) 100 1,131
- -------------------------------------------------------------------------
Vincam Group, Inc. (The)(a) 300 5,269
- -------------------------------------------------------------------------
24,275
- -------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 1.20%
Casella Waste Systems, Inc.(a) 500 18,563
- -------------------------------------------------------------------------
Corrections Corp. of America(a) 300 5,287
- -------------------------------------------------------------------------
Wackenhut Corrections Corp.(a) 300 8,587
- -------------------------------------------------------------------------
Waste Connections, Inc.(a) 300 5,513
- -------------------------------------------------------------------------
37,950
- -------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.20%
Associated Group, Inc. (The)-Class A(a) 400 17,200
- -------------------------------------------------------------------------
International Telecommunication Data Systems, Inc.(a) 500 7,375
- -------------------------------------------------------------------------
Metromedia Fiber Network, Inc.(a) 400 13,400
- -------------------------------------------------------------------------
37,975
- -------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.35%
Global TeleSystems Group, Inc.(a) 200 11,150
- -------------------------------------------------------------------------
TELEPHONE - 0.27%
ICG Communications, Inc.(a) 400 8,600
- -------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.31%
Columbia Sportswear Co.(a) 400 6,750
- -------------------------------------------------------------------------
Nautica Enterprises, Inc.(a) 200 3,000
- -------------------------------------------------------------------------
9,750
- -------------------------------------------------------------------------
WASTE MANAGEMENT - 1.24%
Catalytica, Inc.(a) 500 9,000
- -------------------------------------------------------------------------
Safety-Kleen Corp(a) 700 9,887
- -------------------------------------------------------------------------
Superior Services, Inc.(a) 400 8,025
- -------------------------------------------------------------------------
U.S. Liquids Inc.(a) 400 9,000
- -------------------------------------------------------------------------
Waste Industries, Inc.(a) 200 3,450
- -------------------------------------------------------------------------
39,362
- -------------------------------------------------------------------------
Total Domestic Common Stocks (Cost $2,487,893) 2,772,251
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.44%
BERMUDA - 0.37%
Annuity and Life Re, Ltd. (Insurance-Life/Health) 100 $ 2,700
- ------------------------------------------------------------------------------
Global Crossing Ltd. (Telecommunications-Long Distance)(a) 200 9,025
- ------------------------------------------------------------------------------
11,725
- ------------------------------------------------------------------------------
CANADA - 0.47%
Alliance Atlantis Communications Corp.-Class B
(Entertainment)(a) 100 1,644
- ------------------------------------------------------------------------------
Celestica, Inc. (Electronics-Semiconductors)(a) 300 7,406
- ------------------------------------------------------------------------------
Four Seasons Hotels, Inc. (Lodging-Hotels) 200 5,850
- ------------------------------------------------------------------------------
14,900
- ------------------------------------------------------------------------------
CAYMAN ISLANDS - 0.43%
Sutton Group Financial Services Ltd. (Insurance-
Life/Health)(a) 1,000 13,750
- ------------------------------------------------------------------------------
IRELAND - 0.54%
Ryanair Holdings PLC-ADR (Airlines)(a) 200 7,550
- ------------------------------------------------------------------------------
Saville Systems Ireland PLC-ADR (Services-Data
Processing)(a) 500 9,500
- ------------------------------------------------------------------------------
17,050
- ------------------------------------------------------------------------------
ISRAEL - 0.88%
Check Point Software Technologies Ltd. (Computer- Software
& Services(a) 100 4,581
- ------------------------------------------------------------------------------
Galileo Technology Ltd. (Electronics-Semiconductors)(a) 700 18,900
- ------------------------------------------------------------------------------
NICE-Systems Ltd. (Communications-Equipment)(a) 200 4,325
- ------------------------------------------------------------------------------
27,806
- ------------------------------------------------------------------------------
UNITED KINGDOM - 0.75%
ESG Re Limited (Insurance-Life/Health) 100 2,025
- ------------------------------------------------------------------------------
LucasVarity PLC-ADR (Auto Parts & Equipment) 200 6,700
- ------------------------------------------------------------------------------
NTL Inc. (Telephone)(a) 200 11,287
- ------------------------------------------------------------------------------
Signet Group PLC (Retail-General Merchandise)(a) 4,000 2,044
- ------------------------------------------------------------------------------
Stolt Comex Seaway, S.A. (Oil & Gas-Exploration &
Production)(a) 250 1,687
- ------------------------------------------------------------------------------
23,743
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$98,384) 108,974
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
46
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT(b) - 7.74%
SBC Warburg Dillion Read, Inc., 4.75%, 01/04/99(c) (Cost
$245,668) $245,668 $ 245,668
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.56% 3,126,893
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 1.44% 45,575
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $3,172,468
==============================================================================
</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 is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(c) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviation:
ADR -- American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
47
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value (cost $2,831,945) $ 3,126,893
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 26,986
- ---------------------------------------------------------------------
Dividends and interest 1,092
- ---------------------------------------------------------------------
Investments sold 8,881
- ---------------------------------------------------------------------
Reimbursement from advisor 50,307
- ---------------------------------------------------------------------
Investment for deferred compensation plan 2,777
- ---------------------------------------------------------------------
Total assets 3,216,936
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 34,293
- ---------------------------------------------------------------------
Deferred compensation plan 2,777
- ---------------------------------------------------------------------
Accrued directors' fees 410
- ---------------------------------------------------------------------
Accrued operating expenses 6,988
- ---------------------------------------------------------------------
Total liabilities 44,468
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $ 3,172,468
- ---------------------------------------------------------------------
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 344,450
- ---------------------------------------------------------------------
Net asset value, offering and redemption price per share $9.21
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 19,212
- --------------------------------------------------------------------
Dividends 4,034
- --------------------------------------------------------------------
Total investment income 23,246
- --------------------------------------------------------------------
EXPENSES:
Advisory fees 9,522
- --------------------------------------------------------------------
Administrative services fees 26,658
- --------------------------------------------------------------------
Custodian fees 20,224
- --------------------------------------------------------------------
Directors' fees and expenses 6,710
- --------------------------------------------------------------------
Legal fees 7,847
- --------------------------------------------------------------------
Other 2,699
- --------------------------------------------------------------------
Total expenses 73,660
- --------------------------------------------------------------------
Less: Fees waived and reimbursed by advisor (58,330)
- --------------------------------------------------------------------
Expenses paid indirectly (210)
- --------------------------------------------------------------------
Net expenses 15,120
- --------------------------------------------------------------------
Net investment income 8,126
- --------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (142,359)
- --------------------------------------------------------------------
Futures contracts (111,690)
- --------------------------------------------------------------------
Foreign currencies 28
- --------------------------------------------------------------------
(254,021)
- --------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 294,948
- --------------------------------------------------------------------
Net gain from investment securities and futures contracts 40,927
- --------------------------------------------------------------------
Net increase in net assets resulting from operations $ 49,053
====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
48
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 8,126
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and futures
contracts (254,021)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment securities 294,948
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations 49,053
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment income (12,074)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 3,135,489
- ------------------------------------------------------------------------------
Net increase in net assets 3,172,468
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of period --
- ------------------------------------------------------------------------------
End of period $3,172,468
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $3,134,630
- ------------------------------------------------------------------------------
Undistributed net investment income (3,061)
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities
and futures contracts (254,049)
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities 294,948
- ------------------------------------------------------------------------------
$3,172,468
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Capital Development Fund (the "Fund"). The Fund's investment
objective is long-term capital appreciation. The Fund commenced operations on
May 1, 1998. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts and
variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If no mean is
available, as is the case in some foreign markets, the closing bid will be
used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or, absent a last sales price, at the mean of the closing bid and
asked prices. Debt obligations (including convertible bonds) are valued on
the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive
reliance on quoted prices and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued at
the mean between last bid and asked prices based upon quotes furnished by
independent sources. Securities for which market quotations either are not
readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in
foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
AIM V.I. CAPITAL DEVELOPMENT FUND
49
<PAGE>
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1998
additional paid-in capital was decreased by $859, undistributed net
investment income was increased by $887 and undistributed net realized
gains was decreased by $28 in order to comply with the requirements of the
American Institute of Certified Public Accountants Statement of Position
93-2. Net assets of the Fund were unaffected by the reclassifications
discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $204,323, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of
the first $350 million of the Fund's average daily net assets, plus 0.625% of
the Fund's average daily net assets in excess of $350 million. During the
period May 1, 1998 (date operations commenced) through December 31, 1998, AIM
waived advisory fees and reimbursed expenses of $58,330.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $26,658
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $210 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $210 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees,
if so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the period May 1, 1998 (date operations
commenced) through December 31, 1998 was $3,405,734 and $676,949,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 431,624
- ------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (160,611)
- ------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 271,013
========================================================================
Cost of investments for tax purposes is $2,855,880.
</TABLE>
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 as follows:
<TABLE>
<CAPTION>
1998
-------------------
SHARES AMOUNT
------- ----------
<S> <C> <C>
Sold 403,978 $3,617,838
- -------------------------------------------------------------
Issued as reinvestment of distributions 1,426 12,074
- -------------------------------------------------------------
Reacquired (60,954) (494,423)
- -------------------------------------------------------------
344,450 $3,135,489
=============================================================
</TABLE>
AIM V.I. CAPITAL DEVELOPMENT FUND
50
<PAGE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------------------- ------
Income from investment operations:
Net investment income 0.03(a)
- ----------------------------------------------------------------- ------
Net gains (losses) on securities (both realized and unrealized) (0.78)
- ----------------------------------------------------------------- ------
Total from investment operations (0.75)
- ----------------------------------------------------------------- ------
Less distributions:
Dividends from net investment income (0.04)
- ----------------------------------------------------------------- ------
Net asset value, end of period $ 9.21
================================================================= ======
Total return(b) (7.51)%
================================================================= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $3,172
================================================================= ======
Ratio of expenses to average net assets(c) 1.21%(d)
================================================================= ======
Ratio of net investment income to average net assets(e) 0.62%
================================================================= ======
Portfolio turnover rate 45%
================================================================= ======
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns is not annualized.
(c) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
5.80% (annualized).
(d) Ratios are annualized and based on average net assets of $1,891,388.
(e) After fee waivers and/or expense reimbursements. Ratio of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursement was (3.97)% (annualized).
AIM V.I. CAPITAL DEVELOPMENT FUND
51
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Capital Development Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1998, the related statement of operations, the statement of
changes in net assets, and the financial highlights for the period May 1, 1998
(commencement of operations) through December 31, 1998. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Capital Development Fund, as of December 31, 1998, the results of its
operations, the changes in its net assets, and the financial highlights for the
period May 1, 1998 (commencement of operations) through December 31, 1998 in
conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. CAPITAL DEVELOPMENT FUND
52
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The Managers' Overview
FUND CONTENDS WITH EXTREMELY
NARROW BOND MARKET
A roundtable discussion with the Fund management team for AIM V.I. Diversified
Income Fund for the fiscal year ended December 31, 1998.
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<S> <C> <C>
Q. THE BOND MARKET WAS VERY NARROW FOR Q. HOW DID U.S. DOMESTIC INVESTMENT-GRADE -----------------------
MUCH OF THE YEAR. HOW DID AIM V.I. BONDS FARE?
DIVERSIFIED INCOME FUND PERFORM? A. In the U.S., Treasury securities rose . . . we remain confident that
A. An extremely narrow market environment, in price, sending their yields to historic
favoring the highest-rated government lows. For example, the yield of the our diversified approach to investing
bonds--particularly U.S. Treasury benchmark 30-year Treasury bond fell from
securities--detracted from the Fund's 5.92% at the beginning of the year to will enhance returns and reduce risks
performance. For the year ended 4.71% on October 5--its lowest level since
December 31, 1998, total return was 3.58%. this issue came into existence in 1977-- over the long term.
before ending 1998 at 5.09%.
Q. WHY WAS THE BOND MARKET SO NARROW? While the Treasury market rallied, -----------------------
A. An assortment of global crises created other investment-grade bonds appreciated
an aversion to risk among investors. less dramatically in value. Investment Treasuries and investment-grade corporate
These crises included severe economic grade corporate bonds, for example, bonds began to contract, but remained
problems in Asia, Russia and Latin underperformed Treasuries because of relatively wide at the end of the year.
America as well as political controversy declining company profits and an
in the United States. In this unsettled overabundance of supply. That caused the Q. WHAT ABOUT HIGH-YIELD BONDS?
market environment, investors flocked yield differentials between Treasuries A. High-yield bonds were among the asset
to U.S. Treasury securities and foreign and investment-grade corporate bonds to classes most adversely affected by the
government issues because of their widen substantially. flight to quality. The performance of
relative safety and liquidity. Such a However, the Federal Reserve Board this sector had been solid early in the
phenomenon is known as a "flight to (the Fed), in an effort to infuse year when economic growth was robust and
quality." liquidity back into the broader financial corporate profits were strong.
market, cut interest rates three times However, it deteriorated significantly
Q.DID YOU CHANGE YOUR INVESTMENT STRATEGY, in the fall. Yield spreads between after April in the
GIVEN THE UNUSUAL MARKET ENVIRONMENT?
A. No, we adhered to our disciplined PORTFOLIO COMPOSITION
strategy of investing in three major bond
classes: domestic investment-grade bonds, As of 12/31/98, based on total net assets
high-yield securities and global bonds.
We believe the unusual narrowness that TOP FIVE BOND HOLDINGS
pervaded the global bond market during COUPON MATURITY %
much of the reporting period will 1. LKB Global 6.00% 01/2026 2.09% Pie chart
eventually give way to more normal 2. ConAgra Inc. 7.125 10/2026 1.44
conditions. Moreover, we remain confident 3. Coca-Cola Enterprises, Inc. 7.24 06/2020 1.33 Foreign bonds 33.61%
that our diversified approach to 4. International Bank for Investment-grade
investing will enhance returns and reduce Reconstruction & Development 7.25 05/2003 1.26 bonds 33.30%
risk over the long term. 5. Mercantile Bancorp, Inc. 7.30 06/2007 1.14 High-yield bonds 26.78%
At the end of the reporting period, Other 6.31%
the Fund's total net assets were divided
as follows: domestic investment grade
bonds, 33.30%, high-yield bonds, 26.78%; Please keep in mind that the Fund's portfolio composition is subject to change and
global bonds, 33.61%; and other assets, there is no assurance the Fund will continue to hold any particular security.
6.31%.
AIM V.I. DIVERSIFIED INCOME FUND 53
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wake of declining corporate profit RESULTS OF A $10,000 INVESTMENT
growth and rising default rates. The
performance of high-yield bonds perked up From 5/5/93-12/31/98
following the Fed's rate cuts, but it was
still lackluster for the year. We believe AIM V.I. Diversified Lehman Brothers AVERAGE ANNUAL TOTAL RETURNS
the drop in high-yield bond prices could Income Fund Aggregate Bond Index As of 12/31/98
create some attractive buying (in thousands)
opportunities in this sector. 5/5/93 $10,000 $10,000 Inception (5/5/93) 7.38%
12/93 10,605 10,466
Q. WHAT WERE SOME OF THE MAJOR THEMES 12/94 10,068 10,160 5 Years 7.12
IN THE GLOBAL BOND MARKET? 12/95 11,982 12,037
A. Europe and other developed markets 12/96 13,204 12,474 1 Year 3.58%
were relative safe havens from the 12/97 14,444 13,679
economic turmoil that swept across other 12/98 14,961 14,867
parts of the world during the year. In
most developed countries, higher-rated Past performance cannot guarantee comparable future results.
bonds were the beneficiaries of a low-
inflation, low-interest-rate environment Market volatility can significantly affect short-term performance. Results of
and the efforts of foreign governments to an investment made today may differ substantially from the historical
balance their budgets and reduce deficits. performance shown.
Bond markets we liked included the United
Kingdom, Canada, Germany and New Zealand. The performance figures shown represent the AIM V.I. Diversified Income Fund
For much of 1998, the U.S. dollar was and are not intended to reflect actual annuity values, and do not reflect
strong relative to most other major charges at the separate account level which, if applied, would lower the
currencies, although it did weaken toward performance results. The Fund's performance figures are historical and
the end of the fiscal year. The general reflect reinvestment of all distributions and changes in net asset value. The
strength of the dollar diminished returns Fund's investment return and principal value will fluctuate so that Fund
for U.S. investors. We mitigated the shares, when redeemed, may be worth more or less than their original cost.
effect of a strong dollar by selectively Source: Towers Data Systems HYPO(REGISTERED TRADEMARK).
hedging some of the Fund's currency The Lehman Aggregate Bond Index is an unmanaged index generally
exposure. considered representative of treasury, agency, corporate, and mortgage-backed
Russia's default in August had a debt securities. Index performance is from 4/30/93 through 12/31/98. Source:
disastrous impact on emerging market debt, Lehman Brothers.
which was already languishing as a result An investment cannot be made in any index listed. Index results
of the economic malaise in Asia. However, include reinvested dividends.
the poor performance of emerging-market Higher-yielding, lower-rated corporate bonds, commonly known as "junk
debt was of little consequence to the Fund bonds," have a greater risk of price fluctuation and loss of principal and
since it invests primarily in developed income than U.S. Treasury securities, which offer a government guarantee as
markets and had no exposure to Russia. to the repayment of principal and interest if held to maturity. Purchasers
should carefully assess the risks associated with an investment in this Fund.
Q. HOW WAS THE FUND STRUCTURED AT THE END International investing presents certain risks not associated with
OF THE REPORTING PERIOD? investing solely in the United States. These include risks relating to
A. The Fund had 180 holdings as of fluctuations in the value of the U.S. dollar relative to the values of other
December 31, 1998. The weighted average currencies, the custody arrangements made for the Fund's foreign holdings,
maturity of the portfolio was 11.30 years differences in accounting, political risks, and the lesser degree of public
and its duration was 6.60 years. information required to be provided by non-U.S. companies.
Q. WHAT IS YOUR OUTLOOK? to promote liquidity in the market. Regardless of market trends, we plan to
A. At the close of the fiscal year, the Moreover, other leading economic powers stick to our strategy of investing in
environment appeared favorable for bonds along with the United States were domestic investment-grade, high-yield and
in the United States, Europe and other pursuing policies aimed at creating a global bonds in an effort to reduce risk
developed countries. Perhaps most favorable global investment climate. In and enhance potential return.
important, inflation and interest rates late October, the Group of Seven
were low. Economic growth was still nations--the United States, the United
healthy, although it was expected to Kingdom, Canada, Germany, Italy, France
moderate in the months ahead. and Japan--approved a plan designed to
While the concerns that precipitated prop up financial markets in developing
the flight to Treasuries were still nations. That plan allows the International
lurking in the background, the Fed Monetary Fund to provide loans to
appeared ready to make additional financially troubled countries before
interest rate cuts, if deemed necessary, foreign investors pull out.
54 AIM V.I. DIVERSIFIED INCOME FUND
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SCHEDULE OF INVESTMENTS
December 31, 1998
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<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS &
NOTES - 67.63%
AEROSPACE/DEFENSE - 0.35%
Pacific Aerospace & Electronics, Sr. Sub Notes,
11.25%, 08/01/05 (Acquired 07/24/98; Cost
$450,000)(b) $ 450,000 $ 339,750
- ------------------------------------------------------------------------------
AIR FREIGHT - 0.44%
Atlas Air, Inc., Sr. Notes, 10.75%, 08/01/05 400,000 422,000
- ------------------------------------------------------------------------------
AIRLINES - 2.74%
Airplanes Pass Through Trust, Series D Gtd. Sub.
Bonds, 10.875%, 03/15/19 300,000 315,189
- ------------------------------------------------------------------------------
America West Airlines, Inc., Pass Through
Certificates, 6.86%, 07/02/04 863,999 862,012
- ------------------------------------------------------------------------------
Delta Air Lines, Inc., Deb., 9.00%, 05/15/16 825,000 947,917
- ------------------------------------------------------------------------------
United Air Lines, Inc., Pass Through Certificates,
9.56%, 10/19/18 425,000 521,603
- ------------------------------------------------------------------------------
2,646,721
- ------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 0.41%
Advance Stores Co. Inc., Series B Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 04/15/08 390,000 397,800
- ------------------------------------------------------------------------------
AUTOMOBILES - 0.52%
General Motors Corp., Deb., 8.80%, 03/01/21 400,000 505,973
- ------------------------------------------------------------------------------
BANKS (MAJOR REGIONAL) - 0.60%
Regions Financial Corp., Sub. Notes,
7.75%, 09/15/24 500,000 576,015
- ------------------------------------------------------------------------------
BANKS (MONEY CENTER) - 1.73%
Deutsche Bank Financial, Unsec. Gtd. Sub. Deb., 6.70%,
12/13/06 750,000 790,343
- ------------------------------------------------------------------------------
First Union Bancorp, Sub. Deb., 7.50%, 04/15/35 800,000 877,888
- ------------------------------------------------------------------------------
1,668,231
- ------------------------------------------------------------------------------
BANKS (REGIONAL) - 1.45%
Mercantile Bancorp Inc., Unsec. Sub. Notes, 7.30%,
06/15/07 1,000,000 1,095,900
- ------------------------------------------------------------------------------
Mercantile Bank Inc., Sub. Notes,
6.375%, 01/15/04 300,000 307,056
- ------------------------------------------------------------------------------
1,402,956
- ------------------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 1.33%
Coca-Cola Enterprises, Inc., Putable Notes,
7.24%, 06/20/20(c) 5,000,000 1,282,200
- ------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 4.24%
Comcast Cable Communications, Notes,
8.50%, 05/01/27 500,000 627,470
- ------------------------------------------------------------------------------
CSC Holdings, Inc.,
Sr. Notes, 7.875%, 12/15/07 500,000 527,400
- ------------------------------------------------------------------------------
Sr. Unsec. Deb., 7.625%, 07/15/18 500,000 511,960
- ------------------------------------------------------------------------------
</TABLE>
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<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 $ 498,800
- -------------------------------------------------------------------------------
Knology Holdings, Inc., Sr. Disc. Notes,
11.875%, 10/15/07(d) 1,000,000 462,500
- -------------------------------------------------------------------------------
TCI Communications, Inc., Sr. Notes,
8.00%, 08/01/05 850,000 958,435
- -------------------------------------------------------------------------------
USA Networks, Inc., Sr. Notes, 6.75%, 11/15/05
(Acquired 11/30/98; Cost $501,370)(b) 500,000 501,330
- -------------------------------------------------------------------------------
4,087,895
- -------------------------------------------------------------------------------
CHEMICALS - 2.41%
Airgas Inc., Medium Term Notes, 7.14%, 03/08/04 750,000 765,840
- -------------------------------------------------------------------------------
Nova Gas Transmission Ltd. (Canada), Yankee Deb.,
8.50%, 12/15/12 500,000 606,900
- -------------------------------------------------------------------------------
Solutia, Inc., Bonds, 6.72%, 10/15/37 750,000 762,000
- -------------------------------------------------------------------------------
Sterling Chemicals, Inc., Sr. Unsec. Sub. Notes,
11.75%, 08/15/06 220,000 190,300
- -------------------------------------------------------------------------------
2,325,040
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.47%
Dialog Corp. PLC (United Kingdom), Series A Sr. Sub.
Notes, 11.00%, 11/15/07 350,000 350,000
- -------------------------------------------------------------------------------
Northern Telecom (Canada), Yankee Notes,
6.00%, 09/01/03 100,000 101,482
- -------------------------------------------------------------------------------
451,482
- -------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.50%
Exodus Communications, Sr. Unsec. Notes, 11.25%,
07/01/08 480,000 484,800
- -------------------------------------------------------------------------------
CONSUMER FINANCE - 1.97%
GMAC, Notes, 9.00%, 10/15/02 750,000 836,985
- -------------------------------------------------------------------------------
Household Finance Corp., Notes,
7.125%, 09/01/05 1,000,000 1,064,040
- -------------------------------------------------------------------------------
1,901,025
- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER) - 0.15%
MVE Inc., Sr. Sec. Notes, 12.50%, 02/15/02 145,000 142,825
- -------------------------------------------------------------------------------
ELECTRIC COMPANIES - 3.56%
Cleveland Electric Illumination, Series D Sr. Sec.
Notes, 7.88%, 11/01/17 500,000 527,796
- -------------------------------------------------------------------------------
El Paso Electric Co.,
Series D Sec. First Mortgage Bonds,
8.90%, 02/01/06 500,000 563,250
- -------------------------------------------------------------------------------
Series E Sec. First Mortgage Bonds,
9.40%, 05/01/11 150,000 170,336
- -------------------------------------------------------------------------------
Niagara Mohawk Power Corp.,
First Mortgage Notes, 9.25%, 10/01/01 1,000,000 1,083,450
- -------------------------------------------------------------------------------
Series G Sr. Unsec. Notes, 7.75%, 10/01/08 1,000,000 1,093,100
- -------------------------------------------------------------------------------
3,437,932
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
55
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PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
ELECTRICAL EQUIPMENT - 0.22%
Electronic Retailing Systems International, Inc.,
Sr. Disc. Notes, 13.25%, 02/01/04(d) $ 590,000 $ 215,350
- ------------------------------------------------------------------------------
ENTERTAINMENT - 1.42%
Ascent Entertainment Group, Sr. Sec. Disc. Notes,
11.875%, 12/15/04(d) 350,000 211,750
- ------------------------------------------------------------------------------
Time Warner, Inc.,
Deb., 9.125%, 01/15/13 500,000 628,805
- ------------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 500,000 526,020
- ------------------------------------------------------------------------------
1,366,575
- ------------------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 1.72%
Associates Corp. of North America, Series B Sr. Deb.,
7.95%, 02/15/10 750,000 867,908
- ------------------------------------------------------------------------------
Finova Capital Corp., Unsec. Notes,
7.40%, 05/06/06 750,000 789,195
- ------------------------------------------------------------------------------
1,657,103
- ------------------------------------------------------------------------------
FOODS - 2.07%
AmeriServ Food Co., Gtd. Notes,
10.125%, 07/15/07 320,000 280,000
- ------------------------------------------------------------------------------
ConAgra Inc., Sr. Unsec. Notes, 7.125%, 10/01/26 1,300,000 1,388,972
- ------------------------------------------------------------------------------
Del Monte Corp./Foods Co., Sr. Unsec. Sub. Notes,
12.25%, 04/15/07 290,000 330,600
- ------------------------------------------------------------------------------
1,999,572
- ------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.39%
Venetian Casino Resort LLC, Gtd. Mortgage Notes,
12.25%, 11/15/04 400,000 376,000
- ------------------------------------------------------------------------------
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.80%
Tenet Healthcare Corp., Sr. Notes, 8.00%, 01/15/05 750,000 769,942
- ------------------------------------------------------------------------------
HEALTH CARE (LONG TERM CARE) - 0.39%
Mariner Post-Acute Network, Inc.,
Series B Sr. Unsec. Disc. Sub. Notes,
10.50%, 11/01/07(d) 380,000 165,300
- ------------------------------------------------------------------------------
Series B Sr. Unsec. Sub. Notes, 9.50%, 11/01/07 270,000 209,250
- ------------------------------------------------------------------------------
374,550
- ------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.79%
Alaris Medical Systems, Sr. Unsec. Gtd. Sub. Deb.,
9.75%, 12/01/06 300,000 306,000
- ------------------------------------------------------------------------------
Dade International Inc., Series B Sr. Sub. Notes,
11.125%, 05/01/06 80,000 89,000
- ------------------------------------------------------------------------------
Mediq Inc., Sr. Unsec. Gtd. Sub. Notes,
11.00%, 06/01/08 380,000 366,700
- ------------------------------------------------------------------------------
761,700
- ------------------------------------------------------------------------------
HOUSEWARES - 0.49%
Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes,
11.00%, 05/01/05 500,000 472,500
- ------------------------------------------------------------------------------
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<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
INSURANCE (LIFE/HEALTH) - 0.89%
Americo Life, Inc., Sr. Sub. Notes, 9.25%, 06/01/05 $ 75,000 $ 77,250
- -----------------------------------------------------------------------------
Torchmark Corp., Notes, 7.875%, 05/15/23 750,000 779,640
- -----------------------------------------------------------------------------
856,890
- -----------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 0.48%
Orion Capital Trust II, Gtd. Notes,
7.70%, 04/15/28 500,000 459,410
- -----------------------------------------------------------------------------
IRON & STEEL - 0.33%
Acme Metal, Inc., Sr. Unsec. Gtd. Deb.,
10.875%, 12/15/07(e) 588,000 79,380
- -----------------------------------------------------------------------------
GS Industries, Inc., Sr. Gtd. Notes,
12.00%, 09/01/04 350,000 239,750
- -----------------------------------------------------------------------------
319,130
- -----------------------------------------------------------------------------
LODGING-HOTELS - 2.21%
Booth Creek Ski Holdings, Sr. Notes,
12.50%, 03/15/07 390,000 388,050
- -----------------------------------------------------------------------------
Coast Hotels & Casinos Inc., Series B Sec. First
Mortgage Gtd. Notes, 13.00%, 12/15/02 180,000 203,400
- -----------------------------------------------------------------------------
ITT Corp., Unsec. Gtd. Deb., 7.375%, 11/15/15 750,000 638,100
- -----------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., Sec. First Mortgage
Notes, 9.75%, 10/01/05 550,000 517,000
- -----------------------------------------------------------------------------
Stena Line A.B. (Sweden), Sr. Yankee Notes, 10.625%,
06/01/08 430,000 389,150
- -----------------------------------------------------------------------------
2,135,700
- -----------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 0.34%
Elgin National Industies, Sr. Unsec. Gtd. Sub. Notes,
11.00%, 11/01/07 320,000 323,200
- -----------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.43%
MMI Products, Inc., Sr. Unsec. Sub. Notes,
11.25%, 04/15/07 380,000 412,300
- -----------------------------------------------------------------------------
METALS MINING - 0.94%
Centaur Mining & Exploration Ltd. (Australia), Sr.
Yankee Gtd. Notes, 11.00%, 12/01/07 550,000 503,250
- -----------------------------------------------------------------------------
Rio Algom Ltd. (Canada), Yankee Unsec. Deb., 7.05%,
11/01/05 370,000 402,219
- -----------------------------------------------------------------------------
905,469
- -----------------------------------------------------------------------------
NATURAL GAS - 2.90%
Dynegy, Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 500,000 493,355
- -----------------------------------------------------------------------------
Enron Corp.,
Notes, 6.75%, 08/01/09 750,000 779,827
- -----------------------------------------------------------------------------
Sr. Sub. Deb., 6.75%, 07/01/05 450,000 464,558
- -----------------------------------------------------------------------------
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 525,000 527,625
- -----------------------------------------------------------------------------
K N Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 500,000 527,575
- -----------------------------------------------------------------------------
2,792,940
- -----------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES - 0.32%
United Stationer Supply, Sr. Sub. Notes,
12.75%, 05/01/05 275,000 308,000
- -----------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
56
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<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
OIL (INTERNATIONAL INTEGRATED) - 0.84%
Gulf Canada Resources, Ltd. (Canada), Sr. Yankee Unsec.
Notes, 8.35%, 08/01/06 $ 800,000 $ 805,736
- -------------------------------------------------------------------------------
OIL & GAS (DRILLING & EQUIPMENT) - 1.44%
Petroleum Geo-Services A.S.A. (Norway), Sr. Yankee
Unsec. Notes, 7.125%, 03/30/28 750,000 707,948
- -------------------------------------------------------------------------------
R&B Falcon Corp.,
Sr. Notes, 9.50%, 12/15/08 (Acquired 12/17/98; Cost
$250,000)(b) 250,000 251,250
- -------------------------------------------------------------------------------
Series B Sr. Unsec. Notes, 6.95%, 04/15/08 500,000 434,285
- -------------------------------------------------------------------------------
1,393,483
- -------------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 1.98%
Abraxas Petroleum Corp., Series D Sr. Unsec. Gtd.
Notes, 11.50%, 11/01/04 125,000 95,625
- -------------------------------------------------------------------------------
Chesapeake Energy Corp., Series B Sr. Unsec. Gtd.
Notes, 9.625%, 05/01/05 230,000 180,550
- -------------------------------------------------------------------------------
Kelley Oil & Gas Corp., Series B Sr. Gtd. Sub. Notes,
10.375%, 10/15/06 400,000 298,000
- -------------------------------------------------------------------------------
Louis Dreyfus Natural Gas, Sr. Sub. Notes,
9.25%, 06/15/04 500,000 539,585
- -------------------------------------------------------------------------------
Queen Sand Resources, Inc., Sr. Unsec. Gtd. Notes,
12.50%, 07/01/08 400,000 282,000
- -------------------------------------------------------------------------------
Talisman Energy, Inc. (Canada), Yankee Deb., 7.125%,
06/01/07 500,000 517,020
- -------------------------------------------------------------------------------
1,912,780
- -------------------------------------------------------------------------------
OIL & GAS (REFINING & MARKETING) - 0.34%
Texas Petrochemical Corp., Sr. Unsec. Sub. Notes,
11.125%, 07/01/06 330,000 326,700
- -------------------------------------------------------------------------------
PERSONAL CARE - 1.09%
Alberto-Culver Corp., Notes, 6.375%, 06/15/28 1,000,000 1,047,880
- -------------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 0.85%
AES Corp., Sr. Notes, 8.00%, 12/31/08 750,000 747,532
- -------------------------------------------------------------------------------
Panda Global Energy Co. (China), Sr. Yankee Sec. Gtd.
Notes, 12.50%, 04/15/04 150,000 68,250
- -------------------------------------------------------------------------------
815,782
- -------------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 1.53%
News America Holdings, Inc.,
Sr. Gtd. Deb., 9.25%, 02/01/13 750,000 936,127
- -------------------------------------------------------------------------------
Sr. Gtd. Putable Bonds, 7.43%, 10/01/26 500,000 543,560
- -------------------------------------------------------------------------------
1,479,687
- -------------------------------------------------------------------------------
RAILROADS - 0.76%
Norfolk Southern Corp., Putable Bonds,
7.05%, 05/01/37 650,000 733,993
- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST - 1.51%
Glenborough Properties, Series B Sr. Unsec. Notes,
7.625%, 03/15/05 800,000 766,798
- -------------------------------------------------------------------------------
Spieker Properties LP, Unsec. Deb.,
7.35%, 12/01/17 750,000 689,363
- -------------------------------------------------------------------------------
1,456,161
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
RETAIL (GENERAL MERCHANDISE) - 0.27%
Plainwell Inc., Series B Sr. Unsec. Sub. Notes, 11.00%,
03/01/08 $ 330,000 $ 259,050
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 1.56%
CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub. Notes,
9.625%, 06/01/08 370,000 334,850
- -------------------------------------------------------------------------------
CSK Auto Inc., Sr. Gtd. Sub. Deb.,
11.00%, 11/01/06 260,000 274,300
- -------------------------------------------------------------------------------
Neff Corp., Sr. Sub. Notes, 10.25%, 06/01/08 (Acquired
12/02/98; Cost $325,103)(b) 330,000 320,100
- -------------------------------------------------------------------------------
Renters Choice, Inc., Sr. Sub. Notes, 11.00%, 08/15/08
(Acquired 08/13/98; Cost $500,000)(b) 500,000 510,000
- -------------------------------------------------------------------------------
Wilson's - The Leather Experts, Inc., Sr. Notes, 11.25%,
08/15/04 70,000 68,950
- -------------------------------------------------------------------------------
1,508,200
- -------------------------------------------------------------------------------
RETAIL (SPECIALTY-APPAREL) - 0.74%
Big 5 Corp., Sr. Unsec. Notes, 10.875%, 11/15/07 500,000 507,500
- -------------------------------------------------------------------------------
J Crew Operating Corp., Sr. Sub. Notes,
10.375%, 10/15/07 240,000 207,600
- -------------------------------------------------------------------------------
715,100
- -------------------------------------------------------------------------------
SAVINGS & LOAN COMPANIES - 0.87%
Sovereign Bancorp, Inc., Sub. Notes,
8.00%, 03/15/03 800,000 841,608
- -------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 0.32%
MDC Communications Corp. (Canada), Sr. Yankee Unsec.
Sub. Notes, 10.50%, 12/01/06 300,000 307,500
- -------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.96%
Laidlaw, Inc. (Canada), Yankee Unsec. Deb.,
6.70%, 05/01/08 500,000 488,985
- -------------------------------------------------------------------------------
Pegasus Shipping Hellas Co. (Bermuda), Series A Sr.
Yankee Sec. Gtd. Mortgage Notes,
11.875%, 11/15/04 500,000 432,500
- -------------------------------------------------------------------------------
921,485
- -------------------------------------------------------------------------------
SERVICES (EMPLOYMENT) - 0.38%
MSX International, Inc., Sr. Unsec. Gtd. Sub. Notes,
11.375%, 01/15/08 380,000 363,850
- -------------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 0.04%
ATC Group Services, Inc., Sr. Unsec. Gtd. Sub. Notes,
12.00%, 01/15/08(e) 450,000 42,750
- -------------------------------------------------------------------------------
SHIPPING - 0.43%
Pacific & Atlantic Holdings, Yankee First Mortgage
Notes, 11.50%, 05/30/08 530,000 410,750
- -------------------------------------------------------------------------------
SOVEREIGN DEBT - 2.66%
Province of Manitoba (Canada), Yankee Bonds, 7.75%,
07/17/16 700,000 826,322
- -------------------------------------------------------------------------------
Province of Quebec (Canada),
Series A Yankee Notes, 6.29%, 03/06/26 800,000 897,184
- -------------------------------------------------------------------------------
Yankee Notes, 5.735%, 03/02/26 750,000 845,025
- -------------------------------------------------------------------------------
2,568,531
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
57
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.58%
Clearnet Communications Inc. (Canada), Sr. Yankee
Unsec. Disc. Notes, 14.75%, 12/15/05(d) $ 110,000 $ 95,150
- ------------------------------------------------------------------------------
Metrocall Inc., Sr. Sub. Notes, 11.00%, 09/15/08
(Acquired 12/17/98; Cost $446,868)(b) 450,000 454,500
- ------------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Notes, 12.00%,
11/01/08 (Acquired 10/28/98; Cost $552,037)(b) 560,000 616,000
- ------------------------------------------------------------------------------
PageMart Wireless, Inc., Sr. Sub. Disc. Notes, 11.25%,
02/01/08(d) 750,000 363,750
- ------------------------------------------------------------------------------
1,529,400
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 2.65%
Bell Canada (Canada), Yankee Deb.,
9.50%, 10/15/10 350,000 461,058
- ------------------------------------------------------------------------------
Centel Capital, Deb., 9.00%, 10/15/19 320,000 411,693
- ------------------------------------------------------------------------------
Esprit Telecom Group PLC (United Kingdom), Sr. Yankee
Notes, 11.50%, 12/15/07 350,000 364,000
- ------------------------------------------------------------------------------
MCI Communications Corp., Putable Sr. Unsec. Deb.,
7.125%, 06/15/27 1,000,000 1,063,500
- ------------------------------------------------------------------------------
Versatel Telecom BV (Netherlands), Sr. Notes, 13.25%,
05/15/08 250,000 255,000
- ------------------------------------------------------------------------------
2,555,251
- ------------------------------------------------------------------------------
TELEPHONE - 2.47%
Cable & Wireless Communications PLC (United Kingdom),
Yankee Notes, 6.75%, 03/06/08 750,000 767,655
- ------------------------------------------------------------------------------
ESAT Telecom Group PLC (Ireland), Sr. Yankee Notes,
12.50%, 02/01/07(d) 470,000 312,550
- ------------------------------------------------------------------------------
NTL Inc., Sr. Notes, 11.50%, 10/01/08
(Acquired 10/26/98; Cost $440,000)(b) 440,000 481,800
- ------------------------------------------------------------------------------
SBC Communications, Inc., Deb., 7.375%, 07/15/43 750,000 818,415
- ------------------------------------------------------------------------------
2,380,420
- ------------------------------------------------------------------------------
TEXTILES (APPAREL) - 0.74%
Fruit of the Loom, Notes, 6.50%, 11/15/03 750,000 712,620
- ------------------------------------------------------------------------------
TRUCKERS - 0.41%
Travelcenters of America, Inc., Sr. Unsec. Gtd. Sub.
Deb., 10.25%, 04/01/07 400,000 400,000
- ------------------------------------------------------------------------------
TRUCKS & PARTS - 0.12%
Blue Bird Body Co., Series B Sr. Sub. Notes, 10.75%,
11/15/06 110,000 113,850
- ------------------------------------------------------------------------------
WASTE MANAGEMENT - 1.09%
WMX Technologies, Inc., Unsec. Notes,
7.10%, 08/01/26 1,000,000 1,047,230
- ------------------------------------------------------------------------------
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes
(Cost $65,650,575) 65,228,773
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
U.S. DOLLAR DENOMINATED CONVERTIBLE
BONDS & NOTES - 0.56%
SHIPPING - 0.56%
Hutchison Delta Finance (Cayman Islands), Conv.
Unsec. Notes, 7.00%, 11/08/02
(Cost $527,500) $ 500,000 $ 537,500
- ------------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED
NON-CONVERTIBLE BONDS
& NOTES - 12.32%(f)
CANADA - 6.11%
Bank of Montreal (Banks - Money Center), Sub. Deb.,
7.92%, 07/31/12 CAD 850,000 643,722
- ------------------------------------------------------------------------------
Bell Mobility Cellular (Telecommunications -
Cellular/Wireless), Deb., 6.55%, 06/02/08 750,000 501,936
- ------------------------------------------------------------------------------
Canadian Oil Debco, Inc. (Oil & Gas-Exploration &
Production), Deb.,
11.00%, 10/31/00 450,000 320,000
- ------------------------------------------------------------------------------
Clearnet Communications, Inc. (Telecommunications -
Cellular/Wireless),
Sr. Disc. Notes, 11.75%, 08/13/07(d) 1,500,000 590,686
- ------------------------------------------------------------------------------
Sr. Disc. Notes, 10.40%, 05/15/08(d) 1,600,000 556,863
- ------------------------------------------------------------------------------
Microcell Telecommunications, Inc.
(Telecommunications - Cellular/Wireless), Sr.
Disc. Notes, 11.125%, 10/15/07(d) 1,000,000 361,111
- ------------------------------------------------------------------------------
NAV Canada (Services - Commercial & Consumer),
Bonds, 7.40%, 06/01/27 1,000,000 800,771
- ------------------------------------------------------------------------------
Poco Petroleums Ltd. (Oil & Gas -
Exploration & Production), Unsec. Deb., 6.60%,
09/11/07 750,000 480,863
- ------------------------------------------------------------------------------
Teleglobe Canada, Inc. (Telephone), Unsec. Deb.,
8.35%, 06/20/03 850,000 621,039
- ------------------------------------------------------------------------------
Trans-Canada Pipelines (Natural Gas),
Series Q Deb., 10.625%, 10/20/09 500,000 450,412
- ------------------------------------------------------------------------------
Unsec. Notes, 8.55%, 02/01/06 280,000 213,365
- ------------------------------------------------------------------------------
Westcoast Energy, Inc. (Natural Gas), Deb., 6.45%,
12/18/06 500,000 346,085
- ------------------------------------------------------------------------------
5,886,853
- ------------------------------------------------------------------------------
GERMANY - 2.83%
International Bank for Reconstruction & Development
(Banks - Money Center), Unsec. Global Bonds,
7.125%, 04/12/05(c) DEM 1,000,000 711,987
- ------------------------------------------------------------------------------
LKB Global (Financial-Diversified), Gtd. Notes,
6.00%, 01/25/06 3,000,000 2,016,627
- ------------------------------------------------------------------------------
2,728,614
- ------------------------------------------------------------------------------
NEW ZEALAND - 1.57%
International Bank for Reconstruction & Development
(Banks - Money Center),
Sr. Unsub. Notes, 7.25%, 05/27/03 NZD 2,200,000 1,211,399
- ------------------------------------------------------------------------------
Sr. Unsec. Notes, 6.77%, 08/20/07(c) 1,000,000 303,547
- ------------------------------------------------------------------------------
1,514,946
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
58
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
UNITED KINGDOM - 1.81%
International Bank for Reconstruction &
Development (Banks - Money Center),
Sr. Unsec. Notes, 6.875%, 07/14/00 GBP 500,000 $ 846,580
- -----------------------------------------------------------------------------
Sutton Bridge Financial Ltd. (Financial -
Diversified), Gtd. Eurobonds, 8.625%, 06/30/22
(Acquired 05/29/97;
Cost $733,650)(b) 450,000 901,279
- -----------------------------------------------------------------------------
1,747,859
- -----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated
Non- Convertible Bonds & Notes
(Cost $12,210,409) 11,878,272
- -----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED CONVERTIBLE BONDS &
NOTES - 1.09%(f)
GERMANY - 0.64%
Daimler-Benz A.G. (Automobiles), Conv. Gtd. Unsub.
Eurobonds, 4.125%, 07/05/03 DEM 570,000 619,119
- -----------------------------------------------------------------------------
UNITED KINGDOM - 0.45%
COLT Telecom Group PLC (Telephone), Conv. Notes,
2.00%, 08/06/05 GBP 700,000 435,819
- -----------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Convertible
Bonds & Notes
(Cost $833,353) 1,054,938
- -----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED GOVERNMENT
BONDS & NOTES - 10.67%(f)
BRITISH POUND STERLING - 3.22%
Federal National Mortgage Association, Sr. Unsec.
Notes, 6.875%, 06/07/02 GBP 450,000 795,215
- -----------------------------------------------------------------------------
United Kingdom Treasury,
Bonds, 8.00%, 12/07/00 400,000 702,549
- -----------------------------------------------------------------------------
Gtd. Notes, 7.00%, 11/06/01 400,000 705,209
- -----------------------------------------------------------------------------
Bonds, 7.50%, 12/07/06 450,000 899,399
- -----------------------------------------------------------------------------
3,102,372
- -----------------------------------------------------------------------------
CANADIAN DOLLARS - 2.81%
British Columbia Municipal Finance Authority,
Bonds, 7.75%, 12/01/05 CAD 500,000 374,441
- -----------------------------------------------------------------------------
Canadian Government, Bonds,
6.625%, 10/03/07 500,000 270,179
- -----------------------------------------------------------------------------
Ontario Province, Sr. Unsec. Unsub. Global Bonds,
8.00%, 03/11/03 750,000 545,666
- -----------------------------------------------------------------------------
Province of Ontario, Deb., 11.125%, 02/14/01 500,000 913,595
- -----------------------------------------------------------------------------
Province of Ontario, Unsec. Unsub. Notes, 6.25%,
12/03/08 1,000,000 517,059
- -----------------------------------------------------------------------------
Quebec (Province of), Deb., 9.375%, 01/16/23 100,000 91,871
- -----------------------------------------------------------------------------
2,712,811
- -----------------------------------------------------------------------------
GERMAN DEUTSCHE MARKS - 0.74%
Bundesrepublic Deutschland, Bonds,
6.875%, 05/12/05 DEM 1,000,000 708,431
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT(a) VALUE
<S> <C> <C>
NEW ZEALAND DOLLARS - 1.14%
Federal National Mortgage Association, Notes,
7.25%, 06/20/02 NZD 1,250,000 $ 682,650
- ------------------------------------------------------------------------------
New Zealand Government, Bonds,
8.00%, 02/15/01 750,000 416,233
- ------------------------------------------------------------------------------
1,098,883
- ------------------------------------------------------------------------------
SWEDISH KRONAS - 2.76%
Swedish Government,
Bonds, 6.00%, 02/09/05 SEK 6,000,000 821,959
- ------------------------------------------------------------------------------
Bonds, 6.50%, 10/25/06 6,000,000 860,313
- ------------------------------------------------------------------------------
Bonds, 5.00%, 01/28/09 7,500,000 983,492
- ------------------------------------------------------------------------------
2,665,764
- ------------------------------------------------------------------------------
Total Non-U.S. Dollar Denominated Government
Bonds & Notes
(Cost $10,155,523) 10,288,261
- ------------------------------------------------------------------------------
SHARES
DOMESTIC COMMON STOCK - 0.02%
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.02%
Nextel Communications, Inc. - Class A(g)
(Cost $12,000) 743 17,553
- ------------------------------------------------------------------------------
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.40%
BANKS (REGIONAL) - 0.52%
Westpac Banking Corp. STRYPES Trust - $3.135
Conv. Pfd. 16,000 505,000
- ------------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.88%
Conseco Inc. - $4.278 Conv. PRIDES 8,000 844,000
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks
(Cost $990,600) 1,349,000
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 0.41%
BANKS (MAJOR REGIONAL) - 0.36%
Societe Generale (France) 2,150 348,108
- ------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.00%
Knology Holdings, Inc., expiring 10/15/07
(Acquired 03/12/98; Cost $0)(b)(h) 1,000 2,250
- ------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.00%
Electronic Retailing Systems International,
expiring 02/01/04(h) 590 2,950
- ------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.00%
MVE, Inc., expiring 02/15/02(h) 190 1,900
- ------------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel, Inc., expiring 04/15/03(h) 230 2
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. DIVERSIFIED INCOME FUND
59
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
PERSONAL CARE - 0.00%
IHF Capital Inc., Series I, expiring 11/14/99(h) 150 $ 75
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.01%
Clearnet Communications Inc. (Canada), expiring
09/15/05(h) 891 6,237
- -------------------------------------------------------------------------------
Loral Space & Communications Ltd., expiring 01/15/07(h) 580 6,235
- -------------------------------------------------------------------------------
12,472
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.00%
Versatel, expiring 01/15/07(h) 250 2,531
- -------------------------------------------------------------------------------
TELEPHONE - 0.04%
ESAT Holdings Ltd., expiring 02/01/07(h) 470 33,017
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interest (Cost
$279,886) 403,305
- -------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT(a)
<S> <C> <C>
U.S. TREASURY SECURITIES - 1.42%
5.625%, 05/15/08 $ 300,000 $ 319,872
- -------------------------------------------------------------------------------
5.50%, 08/15/28 1,000,000 1,046,970
- -------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $1,378,625) 1,366,842
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.39%(i)
Goldman Sachs & Co., 4.40%, 01/04/99(j)
(Cost $2,305,989) 2,305,989 2,305,989
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.91% 94,430,433
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 2.09% 2,014,920
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $96,445,353
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Principal amount is in U.S. Dollars, except as indicated by note (e).
(b) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/98 was $4,378,259
which represents 4.54% of the Fund's net assets.
(c) Zero coupon bond issued at a discount. The interest rate shown represents
the rate of original issue discount.
(d) Step bond issued at a discount. The interest rate represents the coupon
rate at which the bond will accrue at a specified future date.
(e) Defaulted security. Currently, the issuer is partially in default with
respect to interest payments.
(f) Foreign denominated security. Par value and coupon rate are denominated in
currency of country indicated.
(g) Non-income producing security.
(h) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(i) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value is at least 102% of the Notes
to Schedule of Investments - (Continued)
sales price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts, and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(j) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Abbreviations:
CAD - Canadian Dollar
Conv. - Convertible
Deb. - Debentures
DEM - German Deutsche Mark
Disc. - Discounted
GBP - British Pound Sterling
Gtd. - Guaranteed
NZD - New Zealand Dollar
Pfd. - Preferred
PRIDES - Preferred Redeemable Increased Dividend Equity Security
Sec. - Secured
SEK - Swedish Krona
Sr. - Senior
STRYPES - Structured Yield Product Exchangeable for Stock
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
60
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $94,344,460) $94,430,433
- ---------------------------------------------------------------------
Foreign currencies, at value (cost $142,597) 144,120
- ---------------------------------------------------------------------
Receivables for:
Forward currency contracts 206,490
- ---------------------------------------------------------------------
Capital stock sold 53,293
- ---------------------------------------------------------------------
Dividends and interest 1,847,543
- ---------------------------------------------------------------------
Investment for deferred compensation plan 22,013
- ---------------------------------------------------------------------
Other assets 452
- ---------------------------------------------------------------------
Total assets 96,704,344
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 86,236
- ---------------------------------------------------------------------
Deferred compensation plan 22,013
- ---------------------------------------------------------------------
Forward currency contracts 70,412
- ---------------------------------------------------------------------
Accrued advisory fees 49,252
- ---------------------------------------------------------------------
Accrued directors' fees 183
- ---------------------------------------------------------------------
Accrued operating expenses 30,895
- ---------------------------------------------------------------------
Total liabilities 258,991
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $96,445,353
- ---------------------------------------------------------------------
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 8,818,969
- ---------------------------------------------------------------------
Net asset value, offering and redemption price per share $ 10.94
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 7,419,812
- -------------------------------------------------------------------------------
Dividends 81,920
- -------------------------------------------------------------------------------
Total investment income 7,501,732
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 580,119
- -------------------------------------------------------------------------------
Administrative services fees 47,472
- -------------------------------------------------------------------------------
Custodian fees 37,018
- -------------------------------------------------------------------------------
Directors' fees and expenses 8,887
- -------------------------------------------------------------------------------
Other 67,596
- -------------------------------------------------------------------------------
Total expenses 741,092
- -------------------------------------------------------------------------------
Less: Expenses paid directly (615)
- -------------------------------------------------------------------------------
Net expenses 740,477
- -------------------------------------------------------------------------------
Net investment income 6,761,255
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FORWARD CURRENCY CONTRACTS:
Net realized gain (loss) from:
Investment securities (1,271,441)
- -------------------------------------------------------------------------------
Foreign currencies (10,161)
- -------------------------------------------------------------------------------
Forward currency contracts 396,825
- -------------------------------------------------------------------------------
(884,777)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities (2,232,376)
- -------------------------------------------------------------------------------
Foreign currencies 19,348
- -------------------------------------------------------------------------------
Forward currency contracts (373,121)
- -------------------------------------------------------------------------------
(2,586,149)
- -------------------------------------------------------------------------------
Net gain (loss) on investment securities, foreign currencies and
forward currency contracts (3,470,926)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,290,329
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. DIVERSIFIED INCOME FUND
61
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,761,255 $ 5,150,458
- -----------------------------------------------------------------------------
Net realized gain (loss) from investment
securities, foreign currencies and forward
currency contracts (884,777) 1,075,468
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investment securities, foreign currencies and
forward currency contracts (2,586,149) 695,704
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,290,329 6,921,630
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment
income (4,724,444) (77,788)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (1,507,363) --
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 10,068,179 18,851,039
- -----------------------------------------------------------------------------
Net increase in net assets 7,126,701 25,694,881
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 89,318,652 63,623,771
- -----------------------------------------------------------------------------
End of year $96,445,353 $89,318,652
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $90,723,425 $80,655,246
- -----------------------------------------------------------------------------
Undistributed net investment income 5,805,150 4,195,077
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
forward currency contracts (311,599) 1,653,803
- -----------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and forward currency contracts 228,377 2,814,526
- -----------------------------------------------------------------------------
$96,445,353 $89,318,652
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Diversified Income Fund (the "Fund"). The Fund's investment
objective is to seek to achieve a high level of current income. The Fund will
seek to achieve its objective by investing primarily in a diversified
portfolio of foreign and U.S. government and corporate debt securities,
including lower rated high yield debt securities (commonly known as "junk
bonds"). These high yield bonds may involve special risks in addition to the
risks associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market in which high yield bonds are traded may be less liquid than the market
for higher grade bonds. Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements.
A. Security Valuations--Debt obligations are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices, and
may reflect appropriate factors such as institution-size trading in similar
groups of securities, developments related to special securities, yield,
quality, coupon rate, maturity, type of issue, individual trading
characteristics and other market data. Investment securities for which
prices are not provided by the pricing service and which are listed or
traded on an exchange are valued at the last sales price on the exchange
where the security is principally traded or, lacking any sales on a
particular day, at the mean between the closing bid and asked prices on
that day unless the Board of Directors, or persons designated by the Board
of Directors, determines that the over-the-counter quotations more closely
reflect the current market value of the security. Securities traded in the
over-the-counter market, except (i) securities priced by the pricing
service, (ii) securities for which representative exchange prices are
available, and (iii) securities reported in the NASDAQ National Market
System, are valued at the mean between representative last bid and asked
prices obtained from
AIM V.I. DIVERSIFIED INCOME FUND
62
<PAGE>
an electronic quotation reporting system, if such prices are available, or
from established market makers. Each security reported in the NASDAQ National
Market System is valued at the last sales price on the valuation date or
absent a last sales price, at the mean of the closing bid and asked prices.
Securities for which market quotations are either not readily available or
are questionable are valued at fair value as determined in good faith by or
under the supervision of the Fund's officers in accordance with methods which
are specifically authorized by the Board of Directors. Short-term obligations
having 60 days or less to maturity are valued at amortized cost which
approximates market value. Generally, trading in foreign securities as well
as corporate bonds and U.S. Government securities is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events affecting the values of such securities and
such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange which will not be reflected in
the computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these securities
will be valued at their fair value as determined in good faith by or under
the supervision of the Board of Directors.
B. Foreign Currency Translation - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
C. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a currency contract for
the amount of a purchase or sale of a security denominated in a foreign
currency in order to "lock-in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
Outstanding forward currency contracts at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ------------------------- APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
- ---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
02/04/99 CAD 5,000,000 $ 3,281,529 $ 3,267,875 $ 13,654
01/15/99 DEM 2,700,000 1,655,660 1,621,505 34,155
01/15/99 DEM 500,000 296,384 300,279 (3,895)
02/26/99 DEM 3,800,000 2,238,850 2,286,929 (48,079)
01/14/99 GBP 1,250,000 2,107,175 2,074,708 32,467
02/26/99 GBP 2,000,000 3,298,740 3,307,651 (8,911)
01/13/99 NZD 1,900,000 989,425 998,952 (9,527)
02/04/99 NZD 2,500,000 1,329,050 1,314,275 14,775
02/26/99 NZD 1,800,000 959,310 946,223 13,087
01/29/99 SEK 20,500,000 2,626,353 2,528,001 98,352
----------- ----------- --------
$18,782,476 $18,646,398 $136,078
=========== =========== ========
</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, 1998 undistributed net investment income was decreased by
$426,738 and undistributed net realized gains was increased by $426,738 in
order to comply with the requirements of the American Institute of
Certified Public Accountants Statement of Position 93-2. Net assets of the
Fund were unaffected by the reclassifications discussed above.
E. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
The Fund had capital loss carryforwards (which may be carried forward to
offset future taxable capital gains, if any) of $299,947, which expires, if
not previously utilized, through the year 2006. The Fund cannot distribute
capital gains to shareholders until the tax loss carryforwards have been
utilized.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.60% of
the first $250 million of the Fund's average daily net assets, plus 0.55% of
such Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $47,472 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$3,617 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $615 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $615 during the year ended December
31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest directors' fees,
if so elected by a director, in mutual fund shares in accordance with a
deferred compensation plan.
AIM V.I. DIVERSIFIED INCOME FUND
63
<PAGE>
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1998 was $55,546,371 and $46,737,685, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 4,188,413
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,102,440)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 85,973
==========================================================================
</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, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,291,048 $ 26,553,679 2,860,755 $ 30,505,544
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 569,635 6,231,807 6,908 77,788
- ------------------------------------------------------------------------------
Reacquired (1,956,150) (22,717,307) (1,114,698) (11,732,293)
- ------------------------------------------------------------------------------
904,533 $ 10,068,179 1,752,965 $ 18,851,039
==============================================================================
</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 three-year period ended December 31, 1998, the
eleven months ended December 31, 1995, the year ended January 31, 1995 and the
period May 5, 1993 (date operations commenced) through January 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.75 0.73 0.73 0.69 0.76 0.54
- -----------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) (0.35) 0.24 0.28 0.94 (1.42) 0.29
- -----------------------------------------------------------------------------------------------
Total from investment
operations 0.40 0.97 1.01 1.63 (0.66) 0.83
- -----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.57) (0.01) (0.68) (0.75) (0.68) (0.35)
- -----------------------------------------------------------------------------------------------
Distributions from net
realized capital gains (0.18) -- -- -- -- (0.02)
- -----------------------------------------------------------------------------------------------
Total distributions (0.75) (0.01) (0.68) (0.75) (0.68) (0.37)
- -----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 10.94 $ 11.29 $ 10.33 $ 10.00 $ 9.12 $ 10.46
===============================================================================================
Total return(a) 3.58% 9.39% 10.19% 18.11% (6.35)% 8.33%
===============================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $96,445 $89,319 $63,624 $44,630 $25,271 $14,530
===============================================================================================
Ratio of expenses to
average net assets 0.77%(b) 0.80% 0.86% 0.88%(c) 0.91%(d) 1.05%(c)(d)
===============================================================================================
Ratio of net investment
income to average net
assets 6.99%(b) 6.90% 7.09% 7.65%(c) 8.07%(e) 6.78%(c)(e)
===============================================================================================
Portfolio turnover rate 50% 52% 76% 72% 100% 57%
===============================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $96,686,554.
(c) Annualized.
(d) After fee waivers and/or expense reimbursement. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.03% and 1.69% (annualized) for January 31, 1995 and 1994, respectively.
(e) After fee waivers and/or expense reimbursement. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 7.95% and 6.14% (annualized) for January 31, 1995 and
1994, respectively.
AIM V.I. DIVERSIFIED INCOME FUND
64
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Diversified Income Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1998, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, the eleven month period ended December 31, 1995, the year
ended January 31, 1995, and the period May 5, 1993 (commencement of operations)
through January 31, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Diversified Income Fund, as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. DIVERSIFIED INCOME FUND
65
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND POSTS SOLID RETURNS IN
VOLATILE MARKET
A roundtable discussion with the Fund management team for AIM V.I. Global
Utilities Fund for the fiscal year ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. THE MARKET EXPERIENCED ALL-TIME to the stability, liquidity, and global currency problems. The Fund's
HIGHS AND ONE OF ITS MOST VICIOUS consistent cash flows of utilities. This smaller-capitalization telecommunications
CORRECTIONS DURING 1998. HOW DID resulted in solid performance for the holdings were also hit hard during the
AIM V.I. GLOBAL UTILITIES FUND Fund. While domestic utilities held their "flight to quality," as investors went
PERFORM IN THIS UNSETTLING ENVIRONMENT? own and even outperformed large-cap stocks, after the more stable, large-cap equities.
A. AIM V.I. Global Utilities Fund earnings of foreign utilities suffered from
continued to benefit from weakening Q. HOW HAVE YOU MANAGED THE FUND DURING
market conditions during 1998 as ------------------ THE FISCAL YEAR?
investors sought the relative safety A. We continued to manage the Fund with
and income potential of utilities. For We continued to manage the Fund our disciplined, earnings-driven stock
the fiscal year ended December 31, 1998, selection process, looking at the
total return was 16.49%. with our disciplined, earnings-driven underlying fundamentals of individual
companies, not the overall market. As of
Q. WHAT WERE THE MAJOR TRENDS IN THE stock selection process, December 31, electric companies
FINANCIAL MARKETS DURING 1998? represented 30.38% of net assets and
A. Currency collapse halted performance looking at the underlying remained the Fund's top industry
of markets worldwide during the second holding, followed by the telephone
half of 1998. Beginning in July, the fundamentals of individual companies, industry at 20.26% and long-distance
second wave of "Asian contagion" quickly telecommunications at 9.60%.
caused deflation around the globe. not the overall market. Europe continued to be the Fund's
Russia's default on its government debt largest overseas region, representing
and the failure of several hedge funds ------------------ 17.43% of the portfolio. In the wake of
in the United States brought more
troubles in the third quarter. Investors TOP 10 EQUITY HOLDINGS
sought shelter from the market
volatility in the safest and most liquid As of 12/31/98, based on total net assets
investment classes, particularly
large-cap equities and U.S. Treasury TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
securities, in a phenomenon known as 1. SBC Communications, Inc. 2.52% 1. Electric Companies 30.20%
"flight to quality." 2. Ameritech Corp. 2.35 2. Telephone 22.26
The Federal Reserve Board (the Fed) 3. MCI WorldCom, Inc. 2.27 3. Telecommunications
announced the first of three interest 4. Telecom Italia S.p.A. 2.16 (Long Distance) 9.60
rate cuts in September, hoping to shelter 5. Williams Companies. Inc. (The) 2.00 4. Natural Gas 8.06
the United States from a potential global 6. Cincinnati Bell, Inc. 1.79 5. Communications Equipment 3.82
recession. Boosted by the Fed easing, the 7. National Grid Group PLC 1.77 6. Power Producers (Independent) 2.47
U.S. market rebounded and led the way for 8. Lucent Technologies, Inc. 1.76 7. Telecommunications
recovery in many global markets. 9. BellSouth Corp. 1.74 (Cellular/Wireless) 2.19
10. Century Telephone 8. Water Utilities 1.84
Enterprise Inc. 1.63 9. Manufacturing (Specialized) 1.76
Q. HOW DID THE FUND FARE IN THIS VOLATILE 10. Real Estate Investment Trust 1.26
PERIOD?
A. As stock markets swooned during the Please keep in mind that the Fund's portfolio composition is subject to change
third quarter, nervous investors looked and there is no assurance the Fund will continue to hold any particular security.
66 AIM V.I. GLOBAL UTILITIES FUND
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
economic difficulties in developing RESULT OF A $10,000 INVESTMENT
markets, we reduced the Fund's
investments in Latin America to 4.88%. From 5/2/94-12/31/98
Q. THE TELEPHONE INDUSTRY REMAINED A AIM V.I. Global Lipper Utility
MAJOR COMPONENT OF THE FUND'S PORTFOLIO. Utilities Fund S&P 500 Fund Index
HOW DID THIS INDUSTRY PERFORM DURING THE (In thousands)
FISCAL YEAR? 5/2/94 $10,000 $10,000 $10,000
A. The $103-billion U.S. local telephone 6/94 9,660 9,903 9,516
industry continued to perform well in a 12/94 9,708 10,384 9,593
deregulated market, spurred by techno- 6/95 10,829 12,481 10,677
logical advances and increased 12/95 12,303 14,283 12,194 AVERAGE ANNUAL TOTAL RETURNS
competition. Several mergers and 6/96 12,737 15,724 12,588
acquisitions were announced in 1998, as 12/96 13,789 17,561 13,331 As of 12/31/98
local telephone companies gained market 6/97 14,909 21,179 14,374
shares by buying customers rather than 12/97 16,772 23,418 16,759 Inception (5/2/94) 15.44%
building new networks. Earlier in the year, 6/98 18,332 27,564 18,137
SBC Communications, the Fund's largest 12/98 19,537 30,109 19,842 1 Year 16.49
holding, agreed to buy Chicago-based
Ameritech in an effort to create the Market volatility can significantly affect short-term performance. Results of an
United States' largest local telephone investment made today may differ substantially from the historical performance shown.
company. As of December 31, the Fund had
2.35% of its investments in Ameritech and The performance figures shown represent the AIM V.I. Global Utilities Fund and are not
should benefit from this merger. intended to reflect actual annuity values, and do not reflect charges at the separate
account level which, if applied, would lower the performance results. The Fund's
Q. WHERE ELSE HAVE YOU FOUND OPPORTUNITIES performance figures are historical and reflect reinvestment of all distributions and
FOR GROWTH? changes in the net asset value. The Fund's investment return and principal value will
A. Industry analysts believe that the fluctuate so that the Fund shares, when redeemed, may be worth more or less than their
wireless communications industry still has original cost. Source: Towers Data Systems HYPO(REGISTERED TRADEMARK).
a lot of room for growth. Currently, there The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a group of unmanaged
are more than 50 million wireless phone securities widely regarded by investors to be representative of the stock market in
users in the United States, representing general. In addition, it is worth noting that the S&P 500 is a broad equities index
a market penetration of only about 17%; that does not include many utility stocks. As of December 31, 1998, only 3.1% of the
180 million wireless customers worldwide, S&P 500 consisted of utility stocks. The unmanaged Lipper Utilities Fund Index is an
or about 3% market penetration. Lower average of the performance of the 30 largest utilities funds tracked by Lipper
calling prices and increased competition Analytical Services, Inc., an independent mutual funds performance monitor. Data for
continue to drive domestic and inter- the S&P 500 and the Lipper Index are for the period 4/30/93-12/31/98.
national growth in this industry. According An investment cannot be made in the indexes listed. Index results include
to Yankee Group, a Boston consulting firm, reinvested dividends.
the number of wireless phone customers in
the U.S. is expected to double in the next confidence in the stability of these diversified portfolio of domestic and
seven or eight years. At the close of the utilities investments may not be as solid international holdings, we believe the
fiscal year, the cellular/wireless as it was in the past. With more Fund is well-positioned to take advantage
telecommunications and communications competition, electric utility companies of these opportunities, while continuing
equipment industries represented about 8% will have to spend money to retain their to provide a level of relative safety.
of the Fund's investments. We expect to market share, increasing volatility in
increase holdings in these areas in the this market. However, future mergers and
future. acquisitions are likely and may offer
attractive growth opportunities.
Q. WHAT IS YOUR OUTLOOK FOR UTILITIES IN Globally, we remain positive about
1999? prospects from the privatization of
A. As deregulation of U.S. electric government-owned utilities. With a
utilities becomes more of a reality,
AIM V.I. GLOBAL UTILITIES FUND 67
</TABLE>
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 48.82%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.54%
Univision Communications, Inc.(a) 4,200 $ 151,987
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.97%
ANTEC Corp.(a) 4,000 80,500
- ------------------------------------------------------------------
Carrier Access Corp.(a) 4,300 148,081
- ------------------------------------------------------------------
Lucent Technologies, Inc. 4,500 495,000
- ------------------------------------------------------------------
Tellabs, Inc.(a) 1,600 109,700
- ------------------------------------------------------------------
833,281
- ------------------------------------------------------------------
ELECTRIC COMPANIES - 17.65%
Allegheny Energy, Inc. 7,300 251,850
- ------------------------------------------------------------------
BEC Energy 3,400 140,038
- ------------------------------------------------------------------
Carolina Power & Light Co. 4,400 207,075
- ------------------------------------------------------------------
Cinergy Corp. 5,100 175,313
- ------------------------------------------------------------------
CMS Energy Corp. 1,600 77,500
- ------------------------------------------------------------------
DQE, Inc. 7,000 307,562
- ------------------------------------------------------------------
Edison International 12,000 334,500
- ------------------------------------------------------------------
Energy East Corp. 6,000 339,000
- ------------------------------------------------------------------
FPL Group, Inc. 5,600 345,100
- ------------------------------------------------------------------
IPALCO Enterprises, Inc. 2,000 110,625
- ------------------------------------------------------------------
New Century Energies, Inc. 4,500 219,375
- ------------------------------------------------------------------
Niagara Mohawk Power Corp.(a) 14,800 238,650
- ------------------------------------------------------------------
NIPSCO Industries, Inc. 11,600 353,075
- ------------------------------------------------------------------
Pinnacle West Capital Corp. 10,800 457,650
- ------------------------------------------------------------------
Public Service Co. of New Mexico 9,800 200,287
- ------------------------------------------------------------------
Sierra Pacific Resources 3,700 140,600
- ------------------------------------------------------------------
Southern Co. 11,600 337,125
- ------------------------------------------------------------------
Teco Energy, Inc. 12,300 346,706
- ------------------------------------------------------------------
Texas Utilities Co. 5,240 244,643
- ------------------------------------------------------------------
Unicom Corp. 3,400 131,113
- ------------------------------------------------------------------
4,957,787
- ------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.43%
Quanta Services, Inc.(a) 5,500 121,344
- ------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 1.38%
Superior TeleCom, Inc. 5,325 251,606
- ------------------------------------------------------------------
USEC, Inc. 9,800 135,975
- ------------------------------------------------------------------
387,581
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NATURAL GAS - 4.09%
Columbia Energy Group 2,700 $ 155,925
- -----------------------------------------------------------------------
Energen Corp. 2,800 54,600
- -----------------------------------------------------------------------
Enron Corp. 2,200 125,538
- -----------------------------------------------------------------------
KN Energy, Inc. 4,600 167,325
- -----------------------------------------------------------------------
Public Service Co. of North Carolina, Inc. 3,200 83,200
- -----------------------------------------------------------------------
Williams Companies, Inc. (The) 18,000 561,375
- -----------------------------------------------------------------------
1,147,963
- -----------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.07%
AES Corp.(a) 2,400 113,700
- -----------------------------------------------------------------------
CalEnergy Co., Inc.(a) 5,400 187,312
- -----------------------------------------------------------------------
301,012
- -----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 1.33%
Alexandria Real Estate Equities, Inc. 4,700 145,406
- -----------------------------------------------------------------------
Boston Properties, Inc. 4,300 131,150
- -----------------------------------------------------------------------
Crescent Real Estate Equities, Co. 2,300 52,900
- -----------------------------------------------------------------------
Golf Trust of America, Inc. 1,600 44,400
- -----------------------------------------------------------------------
373,856
- -----------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.24%
Metzler Group, Inc.(a) 1,400 68,162
- -----------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 5.43%
AT&T Corp. 2,640 198,660
- -----------------------------------------------------------------------
Global TeleSystems Group, Inc.(a) 1,800 100,350
- -----------------------------------------------------------------------
IXC Communications, Inc.(a) 5,700 191,663
- -----------------------------------------------------------------------
MCI WorldCom, Inc.(a) 8,887 637,642
- -----------------------------------------------------------------------
Pacific Gateway Exchange, Inc.(a) 3,200 153,800
- -----------------------------------------------------------------------
WinStar Communications, Inc.(a) 6,275 244,725
- -----------------------------------------------------------------------
1,526,840
- -----------------------------------------------------------------------
TELEPHONE - 13.69%
Ameritech Corp. 10,400 659,100
- -----------------------------------------------------------------------
Bell Atlantic Corp. 3,600 204,525
- -----------------------------------------------------------------------
BellSouth Corp. 9,800 488,775
- -----------------------------------------------------------------------
Century Telephone Enterprises, Inc. 6,800 459,000
- -----------------------------------------------------------------------
Cincinnati Bell, Inc. 13,300 502,906
- -----------------------------------------------------------------------
GTE Corp. 3,200 215,800
- -----------------------------------------------------------------------
McLeodUSA, Inc. - Class A(a) 3,100 96,875
- -----------------------------------------------------------------------
NEXTLINK Communications, Inc. - Class A(a) 1,100 31,213
- -----------------------------------------------------------------------
Qwest Communications International, Inc.(a) 6,400 320,000
- -----------------------------------------------------------------------
SBC Communications, Inc. 13,200 707,850
- -----------------------------------------------------------------------
US West, Inc. 2,500 161,563
- -----------------------------------------------------------------------
3,847,607
- -----------------------------------------------------------------------
Total Domestic Common Stocks (Cost $8,478,351) 13,717,420
- -----------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
68
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC CONVERTIBLE PREFERRED STOCKS - 1.50%
NATURAL GAS - 1.26%
El Paso Energy Cap Trust, Inc. - $2.375 Conv. Pfd. 6,700 $ 320,762
- ------------------------------------------------------------------------------
KN Energy, Inc. - $3.548 Conv. Pfd. 900 33,807
- ------------------------------------------------------------------------------
354,569
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.15%
WinStar Communications, Inc. - $3.50 Conv. Pfd. 900 41,400
- ------------------------------------------------------------------------------
TELEPHONE - 0.09%
NEXTLINK Communications, Inc. - $3.25 Conv. Pfd.(b)
(Acquired 03/26/98; Cost $30,000) 600 24,450
- ------------------------------------------------------------------------------
Total Domestic Convertible Preferred Stocks (Cost
$466,623) 420,419
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS - 23.44%
AUSTRALIA - 0.24%
Telstra Corp. Ltd. (Telephone) 14,380 67,182
- ------------------------------------------------------------------------------
AUSTRIA - 0.53%
Oesterreichische Elektrizitaetswirtschafts A.G. -
Class A (Electric Companies) 970 148,277
- ------------------------------------------------------------------------------
BELGIUM - 0.62%
Electrabel S.A. (Electric Companies) 400 174,820
- ------------------------------------------------------------------------------
BERMUDA - 0.45%
Global Crossing Ltd. (Telecommunications - Long
Distance)(a) 2,800 126,351
- ------------------------------------------------------------------------------
CANADA - 1.84%
MetroNet Communications Corp. - Class B
(Telecommunications)(a) 2,700 90,450
- ------------------------------------------------------------------------------
Teleglobe, Inc. (Telecommunications - Long
Distance) 3,800 136,800
- ------------------------------------------------------------------------------
TELUS Corp. (Telecommunications - Cellular &
Wireless) 8,500 180,555
- ------------------------------------------------------------------------------
Westcoast Energy Inc. (Natural Gas) 5,500 109,313
- ------------------------------------------------------------------------------
517,118
- ------------------------------------------------------------------------------
DENMARK - 0.60%
Tele Danmark A.S. - ADR (Telephone) 2,500 169,688
- ------------------------------------------------------------------------------
FINLAND - 1.14%
Fortum Corp. (Electric Companies)(a) 6,300 38,320
- ------------------------------------------------------------------------------
Nokia Oyj A.B. - Class A - ADR (Communications
Equipment) 2,000 240,875
- ------------------------------------------------------------------------------
Sonera Group Oyj (Telecommunications -
Cellular/Wireless)(a)(b)
(Acquired 11/10/98; Cost $20,144) 2,300 40,617
- ------------------------------------------------------------------------------
319,812
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - 0.98%
France Telecom S.A. - ADR (Communications Equipment) 3,500 $ 276,281
- ----------------------------------------------------------------------------
GERMANY - 1.00%
RWE A.G. (Electric Companies) 2,425 132,790
- ----------------------------------------------------------------------------
Viag A.G. (Manufacturing - Diversified) 250 146,574
- ----------------------------------------------------------------------------
279,364
- ----------------------------------------------------------------------------
GREECE - 0.11%
Panafon Hellenic Telecom S.A. - GDR
(Telecommunications - Cellular/Wireless)(a)(b)
(Acquired 11/20/98; Cost $21,696) 1,200 31,800
- ----------------------------------------------------------------------------
HUNGARY - 0.33%
Magyar Tavkozlesi - ADR (Telecommunications - Long
Distance) 3,100 92,419
- ----------------------------------------------------------------------------
ITALY - 4.40%
AEM S.p.A. (Electric Companies)(a)(b)
(Acquired 07/17/98; Cost $52,035) 55,000 131,950
- ----------------------------------------------------------------------------
Societa Nordelettrica S.p.A. (Electric Companies) 49,000 216,730
- ----------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Telecommunications -
Cellular/Wireless) 38,025 280,695
- ----------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 71,277 608,099
- ----------------------------------------------------------------------------
1,237,474
- ----------------------------------------------------------------------------
JAPAN - 0.42%
Nippon Telegraph & Telephone Corp.
(Telecommunications - Long Distance) 90 69,464
- ----------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. - ADR
(Telecommunications - Long Distance) 1,300 48,750
- ----------------------------------------------------------------------------
118,214
- ----------------------------------------------------------------------------
NETHERLANDS - 0.61%
Equant N.V. (Computers - Networking)(a) 900 61,032
- ----------------------------------------------------------------------------
Koninklijke KPN N.V. (Telecommunications - Long
Distance) 3 150
- ----------------------------------------------------------------------------
Royal PTT Nederland N.V. - ADR (Telephone) 24 1,206
- ----------------------------------------------------------------------------
TNT Post Group N.V. (Air Freight) 284 9,148
- ----------------------------------------------------------------------------
TNT Post Group N.V. - ADR (Air Freight) 3,046 98,985
- ----------------------------------------------------------------------------
170,521
- ----------------------------------------------------------------------------
PORTUGAL - 2.06%
Electricidade de Portugal, S.A. (Electric Companies) 2,900 63,906
- ----------------------------------------------------------------------------
Electricidade de Portugal, S.A. - ADR (Electric
Companies) 4,000 178,250
- ----------------------------------------------------------------------------
Portugal Telecom S.A. - ADR (Telephone) 5,700 254,363
- ----------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications - Cellular/Wireless) 200 40,919
- ----------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A. - ADR
(Telecommunications - Cellular/Wireless) 200 40,884
- ----------------------------------------------------------------------------
578,322
- ----------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
69
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
SPAIN - 2.81%
Autopistas Concesionaria Espanola S.A. (Services -
Commercial & Consumer) 3,900 $ 64,784
- ------------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 21,000 392,447
- ------------------------------------------------------------------------------
Telefonica S.A. - ADR (Telephone) 2,448 331,398
- ------------------------------------------------------------------------------
788,629
- ------------------------------------------------------------------------------
SWITZERLAND - 0.75%
Swisscom A. G. (Telephone)(a) 500 209,364
- ------------------------------------------------------------------------------
UNITED KINGDOM - 4.55%
Hyder PLC (Water Utilities) 4,280 53,702
- ------------------------------------------------------------------------------
National Grid Group PLC (Electric Companies) 10,313 82,225
- ------------------------------------------------------------------------------
PowerGen PLC (Electric Companies) 31,485 413,366
- ------------------------------------------------------------------------------
PowerGen PLC - ADR (Electric Companies) 1,100 58,850
- ------------------------------------------------------------------------------
Scottish & Southern Energy PLC (Electric Companies) 9,706 109,203
- ------------------------------------------------------------------------------
Scottish Power PLC (Electric Companies) 15,950 163,682
- ------------------------------------------------------------------------------
United Utilities PLC (Water Utilities) 15,459 214,008
- ------------------------------------------------------------------------------
Yorkshire Water PLC (Water Utilities) 20,174 184,399
- ------------------------------------------------------------------------------
1,279,435
- ------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$4,201,239) 6,585,071
- ------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
DOMESTIC NON-CONVERTIBLE BONDS & NOTES - 9.99%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.92%
Comcast Cable Communications, Unsec. Unsub. Notes,
6.20%, 11/15/08 $ 150,000 152,997
- ------------------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 9.50%, 01/15/08 100,000 105,750
- ------------------------------------------------------------------------------
258,747
- ------------------------------------------------------------------------------
CONSUMER FINANCE - 0.30%
GMAC, Notes, 9.00%, 10/15/02 75,000 83,698
- ------------------------------------------------------------------------------
ELECTRIC COMPANIES - 2.28%
Commonwealth Edison Co., First Mortgage Notes, 7.50%,
07/01/13 130,000 146,998
- ------------------------------------------------------------------------------
El Paso Electric Co., Sec. First Mortgage Bonds
Series D, 8.90%, 02/01/06 75,000 84,488
- ------------------------------------------------------------------------------
Series E, 9.40%, 05/01/11 100,000 113,557
- ------------------------------------------------------------------------------
Niagara Mohawk Power Corp., Series G Sr. Unsec. Notes,
7.75%, 10/01/08 100,000 109,310
- ------------------------------------------------------------------------------
Western Resources, Inc.
Sr. Unsec. Notes, 6.25%, 08/15/03 75,000 76,482
- ------------------------------------------------------------------------------
Sr. Notes, 7.125%, 08/15/09 100,000 108,860
- ------------------------------------------------------------------------------
639,695
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
ENTERTAINMENT - 1.06%
Time Warner, Inc.
Deb., 9.125%, 01/15/13 $ 175,000 $ 220,082
- ----------------------------------------------------------------------------
Unsec. Deb., 6.85%, 01/15/26 75,000 78,903
- ----------------------------------------------------------------------------
298,985
- ----------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.38%
California Energy Co., Notes, 10.25%, 01/15/04 100,000 105,620
- ----------------------------------------------------------------------------
NATURAL GAS - 1.73%
Dynegy Inc., Sr. Unsec. Deb., 7.125%, 05/15/18 100,000 98,671
- ----------------------------------------------------------------------------
Ferrellgas Partners, Series B Sr. Sec. Gtd. Notes,
9.375%, 06/15/06 75,000 75,376
- ----------------------------------------------------------------------------
KN Energy, Inc., Unsec. Deb., 7.35%, 08/01/26 250,000 263,787
- ----------------------------------------------------------------------------
PanEnergy Corp., Notes, 7.875%, 08/15/04 45,000 49,408
- ----------------------------------------------------------------------------
487,242
- ----------------------------------------------------------------------------
OIL & GAS (EXPLORATION & PRODUCTION) - 0.37%
Tennessee Gas Pipeline Co., Bonds,
7.00%, 03/15/27 100,000 104,712
- ----------------------------------------------------------------------------
POWER PRODUCERS (INDEPENDENT) - 1.41%
AES Corp.
Sr. Sub. Notes, 10.25%, 07/15/06 75,000 81,188
- ----------------------------------------------------------------------------
Sr. Notes, 8.00%, 12/31/08 100,000 99,671
- ----------------------------------------------------------------------------
Arizona Public Service Co., Deb., 8.00%, 12/30/15 75,000 86,266
- ----------------------------------------------------------------------------
Indiana Michigan Power, Sec. Lease Obligation Bonds,
9.82%, 12/07/22 93,405 126,767
- ----------------------------------------------------------------------------
393,892
- ----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 1.54%
AT&T Corp., Sr. Notes, 7.75%, 03/01/07 150,000 173,046
- ----------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Notes, 6.875%,
11/15/28 250,000 260,540
- ----------------------------------------------------------------------------
433,586
- ----------------------------------------------------------------------------
Total Domestic Non-Convertible Bonds & Notes (Cost
$2,666,053) 2,806,177
- ----------------------------------------------------------------------------
DOMESTIC CONVERTIBLE BONDS - 2.12%
COMPUTERS (HARDWARE) - 1.32%
Candescent Technology Corp., Conv. Sr. Sub.(b) Deb.,
7.00%, 05/01/03 (Acquired 04/17/98-11/09/98; Cost
$396,154) 412,000 370,800
- ----------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.80%
Global Telesystems Group, Sr. Sub. Notes, 8.75%,
06/30/00 80,000 225,400
- ----------------------------------------------------------------------------
Total Domestic Convertible Bonds (Cost $539,616) 596,200
- ----------------------------------------------------------------------------
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
70
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN NON-CONVERTIBLE BONDS & NOTES - 1.91%(c)
CANADA - 1.91%
Bell Canada (Telecommunications -Cellular/Wireless)
Unsec. Deb., 10.875%, 10/11/04 CAD $ 50,000 $ 41,386
- ---------------------------------------------------------------------------
Series EW Deb., 8.80%, 08/17/05 50,000 38,846
- ---------------------------------------------------------------------------
Canadian Oil Debco Inc.
(Oil & Gas - Exploration & Production),
Deb., 11.00%, 10/31/00 100,000 71,111
- ---------------------------------------------------------------------------
Ontario Hydro (Electric Companies),
Sr. Unsec. Notes, 9.00%, 06/24/02 200,000 147,456
- ---------------------------------------------------------------------------
Teleglobe Canada, Inc. (Telephone),
Unsec. Deb., 8.35%, 06/20/03 100,000 73,064
- ---------------------------------------------------------------------------
Trans-Canada Pipelines (Natural Gas)
Unsec. Notes, 8.55%, 02/01/06 70,000 53,341
- ---------------------------------------------------------------------------
Series Q Deb., 10.625%, 10/20/09 125,000 112,603
- ---------------------------------------------------------------------------
Total Foreign Non-Convertible Bonds & Notes (Cost
$554,253) 537,807
- ---------------------------------------------------------------------------
FOREIGN CONVERTIBLE BONDS - 2.18%(c)
FRANCE - 0.41%
France Telecom (Telephone), Conv. Bonds,
2.00%, 01/01/04 FRF 603,520 114,856
- ---------------------------------------------------------------------------
UNITED KINGDOM - 1.77%
National Grid Co. PLC, (Electric Companies), Bonds,
4.25%, 02/17/08 GBP 240,000 498,569
- ---------------------------------------------------------------------------
Total Foreign Convertible Bonds (Cost $504,277) 613,425
- ---------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 1.17%
U.S. TREASURY BONDS - 0.61%
7.625%, 02/15/25 130,000 171,000
- ---------------------------------------------------------------------------
U.S. TREASURY NOTES - 0.56%
6.625%, 06/30/01 150,000 157,114
- ---------------------------------------------------------------------------
Total U.S. Treasury Securities (Cost $292,052) 328,114
- ---------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.51%(d)
Goldman, Sachs & Co., 4.40%, 01/04/99
(Cost $2,391,815)(e) 2,391,815 2,391,815
- ---------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 99.64% 27,996,448
- ---------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.36% 137,180
- ---------------------------------------------------------------------------
NET ASSETS - 100.00% $28,133,628
===========================================================================
</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 these securities at 12/31/98 was $599,617 which
represented 2.13% of the Fund's net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(d) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreements. The collateral is
marked to market daily to ensure its market value is at least 102% of the
sales price of the repurchase agreement. The investments in some
repurchase agreements are through participation in joint accounts with
other mutual funds, private accounts, and certain non-registered
investment companies managed by the investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 at $714,694,897.
Abbreviations:
ADR - American Depositary Receipt
CAD - Canadian Dollars
Conv. - Convertible
Deb. - Debentures
FRF - French Francs
GBP - British Pound Sterling
GDR - Global Depositary Receipt
Gtd. - Guaranteed
Pfd. - Preferred
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
71
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $20,094,279) $27,996,448
- ---------------------------------------------------------------------
Foreign currencies, at value (cost $421) 423
- ---------------------------------------------------------------------
Receivables for:
Capital stock sold 35,150
- ---------------------------------------------------------------------
Dividends and interest 124,164
- ---------------------------------------------------------------------
Investment for deferred compensation plan 18,328
- ---------------------------------------------------------------------
Total assets 28,174,513
- ---------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 103
- ---------------------------------------------------------------------
Deferred compensation plan 18,328
- ---------------------------------------------------------------------
Accrued advisory fees 14,982
- ---------------------------------------------------------------------
Accrued directors' fees 175
- ---------------------------------------------------------------------
Accrued operating expenses 7,297
- ---------------------------------------------------------------------
Total liabilities 40,885
- ---------------------------------------------------------------------
Net assets applicable to shares outstanding $28,133,628
- ---------------------------------------------------------------------
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ---------------------------------------------------------------------
Outstanding 1,620,177
- ---------------------------------------------------------------------
Net asset value, offering and redemption price per share $17.36
=====================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $24,555 foreign withholding tax) $ 488,969
- ---------------------------------------------------------------------------
Interest 396,662
- ---------------------------------------------------------------------------
Total investment income 885,631
- ---------------------------------------------------------------------------
EXPENSES:
Advisory fees 161,488
- ---------------------------------------------------------------------------
Administrative services fees 46,855
- ---------------------------------------------------------------------------
Custodian fees 22,823
- ---------------------------------------------------------------------------
Directors' fees and expenses 8,926
- ---------------------------------------------------------------------------
Professional fees 20,541
- ---------------------------------------------------------------------------
Other 14,694
- ---------------------------------------------------------------------------
Total expenses 275,327
- ---------------------------------------------------------------------------
Less: Expenses paid indirectly (276)
- ---------------------------------------------------------------------------
Net expenses 275,051
- ---------------------------------------------------------------------------
Net investment income 610,580
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (179,826)
- ---------------------------------------------------------------------------
Foreign currencies 8,019
- ---------------------------------------------------------------------------
Futures contracts 110,924
- ---------------------------------------------------------------------------
Option contracts 921
- ---------------------------------------------------------------------------
(59,962)
- ---------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 3,278,067
- ---------------------------------------------------------------------------
Foreign currencies 587
- ---------------------------------------------------------------------------
3,278,654
- ---------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, futures
and option contracts 3,218,692
- ---------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,829,272
===========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GLOBAL UTILITIES FUND
72
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 610,580 $ 458,649
- --------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures and option contracts (59,962) 176,145
- --------------------------------------------------------------------------------
Net unrealized appreciation of investment securities
and foreign currencies 3,278,654 2,779,707
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,829,272 3,414,501
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income (450,038) --
- --------------------------------------------------------------------------------
Distributions from net realized gains (187,121) (6,795)
- --------------------------------------------------------------------------------
Net increase from capital stock transactions 2,862,654 5,095,582
- --------------------------------------------------------------------------------
Net increase in net assets 6,054,767 8,503,288
- --------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 22,078,861 13,575,573
- --------------------------------------------------------------------------------
End of year $28,133,628 $22,078,861
================================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $19,698,693 $16,836,039
- --------------------------------------------------------------------------------
Undistributed net investment income 608,138 439,576
- --------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies, futures
and option contracts (75,451) 179,652
- --------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies and option contracts 7,902,248 4,623,594
- --------------------------------------------------------------------------------
$28,133,628 $22,078,861
================================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Global Utilities Fund (the "Fund"). The Fund's investment
objective is to achieve a high level of current income, and as a secondary
objective the Fund seeks to achieve capital appreciation, by investing
primarily in the common and preferred stocks of public utility companies
(either domestic or foreign). Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or, absent a last sales price, at the mean of the closing bid and
asked prices. Debt obligations (including convertible bonds) are valued on
the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued at
the mean between last bid and asked prices based upon quotes furnished by
independent sources. Securities for which market quotations either are not
readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors.
Short-term obligations having
AIM V.I. GLOBAL UTILITIES FUND
73
<PAGE>
60 days or less to maturity are valued at amortized cost which approximates
market value. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of such times. Foreign currency
exchange rates are also generally determined prior to the close of the New
York Stock Exchange. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they
are determined and the close of the New York Stock Exchange which will not be
reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Realized gains or losses from securities transactions
are recorded on the identified cost basis. On December 31, 1998,
undistributed net realized gain (loss) was decreased and undistributed net
investment income was increased by $8,020 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $50,716, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at date of valuation. Purchases and sales of portfolio securities
and income items denominated in foreign currencies are translated into U.S.
dollar amounts on the respective dates of such transactions. The Fund does
not separately account for that portion of the results of operations
resulting from changes in foreign exchange rates on investments and the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
F. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
G. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
H. Put options - The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
options' underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The option's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a
AIM V.I. GLOBAL UTILITIES FUND
74
<PAGE>
portion of the Fund's resulting losses. At the same time, because the maximum
the Fund has at risk is the cost of the option, purchasing put options does
not eliminate the potential for the Fund to profit from an increase in the
value of the securities hedged.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $46,855 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$3,476 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $276 under an expense offset
arrangement. The effect of this arrangement resulted in a reduction of the
Fund's total expenses of $276 during the year ended December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1998 was $10,839,264 and $6,928,632, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $8,036,931
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (134,773)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $7,902,158
=========================================================================
</TABLE>
Cost of investments for tax purposes is $20,094,290.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Sold 516,028 $8,375,181 505,614 $ 6,971,987
- -----------------------------------------------------------------------
Issued as reinvestment of
distributions 37,858 637,159 459 6,795
- -----------------------------------------------------------------------
Reacquired (380,439) (6,149,686) (140,799) (1,883,200)
- -----------------------------------------------------------------------
173,447 $2,862,654 365,274 $ 5,095,582
=======================================================================
</TABLE>
NOTE 7 - OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
OPTION CONTRACTS
------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Beginning of period -- $ --
- ---------------------------------------
Written 14,000 921
- ---------------------------------------
Closed (14,000) (921)
- ---------------------------------------
Expired -- --
- ---------------------------------------
End of period -- $ --
=======================================
</TABLE>
AIM V.I. GLOBAL UTILITIES FUND
75
<PAGE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, the
eleven months ended December 31, 1995 and the period May 2, 1994 (date
operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- JANUARY 31,
1998 1997 1996 1995 1995
------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.26 $ 12.55 $11.64 $9.69 $10.00
- ---------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.35 0.32 0.40 0.29 0.27
- ---------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.15 2.40 0.99 1.98 (0.33)
- ---------------------------------------------------------------------------------------
Total from investment
operations 2.50 2.72 1.39 2.27 (0.06)
- ---------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.28) -- (0.41) (0.31) (0.25)
- ---------------------------------------------------------------------------------------
Distributions from net
realized gains (0.12) (0.01) (0.07) (0.01) --
- ---------------------------------------------------------------------------------------
Total distributions (0.40) (0.01) (0.48) (0.32) (0.25)
- ---------------------------------------------------------------------------------------
Net asset value, end of
period $ 17.36 $ 15.26 $12.55 $11.64 $ 9.69
=======================================================================================
Total return(a) 16.49% 21.63% 12.07% 23.73% (0.56)%
=======================================================================================
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $28,134 $22,079 $13,576 $8,394 $2,958
=======================================================================================
Ratio of expenses to
average net assets 1.11%(b) 1.28% 1.40%(c) 1.47%(c)(d) 1.31%(d)(e)
=======================================================================================
Ratio of net investment
income to average net
assets 2.46%(b) 2.81% 3.56%(c) 3.76%(c)(d) 4.39%(d)(e)
=======================================================================================
Portfolio turnover rate 32% 28% 47% 58% 69%
=======================================================================================
</TABLE>
(a) Totals returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $24,844,324.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average net assets prior to fee waivers and/or
expense reimbursements were 1.55%, 3.42% for 1996 and 2.44% (annualized)
and 2.79% (annualized) for 1995.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average net assets prior to fee waivers and/or
expense reimbursements were 2.80% (annualized) and 2.90% (annualized),
respectively.
AIM V.I. GLOBAL UTILITIES FUND
76
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Global Utilities Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the three years in the period
then ended, the eleven month period ended December 31, 1995, and the period May
2, 1994 (commencement of operations) through January 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Global Utilities Fund, as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, the eleven month period ended
December 31, 1995, and the period May 2, 1994 (commencement of operations)
through January 31, 1995 in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. GLOBAL UTILITIES FUND
77
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND PROVIDES STABILITY IN
TURBULENT MARKET ENVIRONMENT
A roundtable discussion with the Fund management team for AIM V.I. Government
Securities Fund for the fiscal year ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. IT WAS A VOLATILE TIME FOR EQUITY AND PORTFOLIO COMPOSITION we spread the Fund's assets among U.S.
FIXED-INCOME MARKETS ALIKE. HOW DID THE government bonds that have a variety of
FUND PERFORM DURING THE TWELVE MONTHS As of 12/31/98, based on total investments maturities and coupon rates. However, it
ENDED DECEMBER 31, 1998? is not unusual to re-allocate some of our
A. Despite an environment rife with Pie Chart assets into securities that may respond
turmoil and volatility, AIM V.I. favorably to the existing market
Government Securities Fund stayed in line Mortgage-Backed Obligations 68.46% conditions.
with its primary objective of providing a U.S. Treasury Obligations 15.78% As a general rule, the shorter the
steady flow of income while preserving U.S. Agency Obligations 10.54% time period before a securities' maturity
capital. For the fiscal year ended Cash Equivalent 5.22% the less volatile its price and yield.
December 31, 1998, the Fund's total Thus, in times of uncertainty in the bond
return was 7.73%. Please keep in mind that the Fund's market, the Fund may allocate more assets
portfolio composition is subject to change toward shorter-term securities, like five
Q. WHAT WERE THE MAJOR FACTORS INFLUENCING and there is no assurance the Fund will year notes, to help temper the volatility
THE INVESTING ENVIRONMENT DURING 1998? continue to hold any particular security. of the Fund's portfolio and protect
A. In general, the reporting period was a capital.
tumultuous one as the Asian economic At the same time, mortgage-backed
crisis that began in the latter half of beneficiaries of this volatile investment securities and bonds with longer
1997 spent 1998 intermittently wreaking environment were the government bonds in maturities, like 10-year U.S. Treasury
havoc in both equity and fixed income the United States and the industrialized notes, are more susceptible to price
markets. Certainly this was most evident nations in Europe. As these securities are fluctuations in a volatile market. While
in August and September when a combination backed by the full faith and credit of this creates a relatively greater risk, it
of factors stemming from Asia resulted in their governments, they were viewed as a also offers greater opportunity for income
a fear-driven global flight from all forms safe haven throughout this time of unrest. and growth of capital. In times of market
of investment risk. Markets eventually rebounded after a stability, the Fund may allocate a greater
In a matter of weeks aspirations for series of interest rate cuts by the amount of its assets to these types of
total returns were replaced with those of Federal Reserve Board (the Fed.) However, securities to take advantage of yield and
preservation of capital. Investors the effects of the market sell-off left total return opportunities.
abandoned riskier securities causing many investors wary. As investors had Overall, our primary goal is to
equity and nongovernment bond markets watched the value of riskier securities provide a product for the investor that
around the world to tumble. The chief plummet, many saw fit to diversify their will maintain a low level of volatility
assets by adding a relatively more stable while producing competitive returns.
--------------- asset in their portfolio, such as AIM V.I. Through diversification, the Fund strives
Government Securities Fund, to dampen to combine the average price volatility of
Our primary goal is to provide market volatility. a five-year Treasury note with the
distribution yield of a thirty-year
a product for the investor that will Q. HOW DOES THE FUND'S STRATEGY COMPENSATE Treasury bond.
FOR TIMES OF MARKET UNCERTAINTY?
maintain a low level of volatility while A. Diversification is a key element in Q.HOW WAS THIS INVESTMENT STRATEGY
weathering market volatility. As a result UTILIZED DURING THE VOLATILTY IN AUGUST
producing competitive returns. AND SEPTEMBER?
A. As market volatility typically results
--------------- in a demand for the relatively safer
securities like U.S. Treasuries, we
reduced our exposure to mortgage-backed
securities while reallocating a portion of
our assets
</TABLE>
78 AIM V.I. GOVERNMENT SECURITIES FUND
<PAGE>
<TABLE>
<S> <C> <C>
in Treasuries. This proved beneficial for Q. WHAT IS YOUR OUTLOOK FOR THE NEAR-TERM? As in 1998, the devaluation of a currency
the Fund as the third quarter witnessed a A. While it appeared at the mid-point of or a similar economic crisis could result
surging demand for Treasuries. this year that the robust economic growth in investors rushing back into the U.S.
might result in an increase in the Federal Treasury market and additional rate cuts.
Q. HOW DID FALLING INTEREST RATES AFFECT Funds rate, it soon became apparent that On the domestic front, most analysts
THE FUND'S HOLDINGS IN MORTGAGE BACKED Asia's economic struggles and their expect a slowdown in U.S. economic growth
SECURITIES? effects on the global marketplace would and a continuation of relatively low
A. Historically, the Fund maintains a not allow for such action. Instead, the inflation. Historically, these conditions
substantial weighting in mortgage-backed Fed cut short-term rates by 0.75% in the have proven beneficial for bond investors
securities as they can provide a yield final months of 1998 to enhance worldwide Regardless of what the coming year may
that is generally higher than intermediate- liquidity. In addition, the Fed has made bring, AIM V.I. Government Securities Fund
term Treasury securities. Despite the fact it clear that it will not hesitate to will strive to tailor the portfolio to
that the Fed cut rates three times during lower rates again if need dictates. market conditions as they change
the Fall--causing longer-term interest Uncertainty still remains regarding Japan throughout the coming year. In doing so,
rates to fall in tandem--the Fund did not and the emerging markets of Asia and Latin the Fund will endeavor to provide the same
suffer any serious setbacks. This can be America, specifically in China and Brazil. stability and level of income it has in
largely attributed to the research the past.
intensive approach we take in selecting
these securities. Using thorough research, GROWTH OF A $10,000 INVESTMENT
the Fund targets mortgages which are less
likely to be refinanced. While mortgage From 5/5/93-12/31/98
refinancings did increase on the whole
during the fall, we found that our careful Lehman Brothers
selection process sufficiently reduced the AIM V.I. Government Intermediate
impact of refinancings on the Fund. Securities Fund Government Bond Index
(In thousands)
Q. HOW WAS THE FUND POSITIONED AT THE END 5/5/93 $10,000 $10,000
OF THE REPORTING PERIOD? 12/93 10,355 10,346 AVERAGE ANNUAL TOTAL RETURN
A. The third-quarter flight from risk 6/94 9,922 10,098
caused prices of mortgage-backed 12/94 9,969 10,165 As of 12/31/98
securities to decline. As prices declined, 6/95 10,935 11,083
yields on these securities rose 12/95 11,520 11,632 Inception (5/5/93) 5.76%
considerably in relation to Treasury 6/96 11,316 11,630 5 Years 5.80
yields. With low prices and attractive 12/96 11,784 12,104 1 Year 7.73
yields, the mortgage-backed markets were 6/97 12,094 12,438
awash with bargains. As it became clear 12/97 12,745 13,039
that investor confidence was returning and 6/98 13,211 13,479
that the Treasury rally was in its final 12/98 13,730 14,143
stages, management was able to reduce its
weighting in the lower-yielding Treasury
securities and add value to the portfolio Market volatility can significantly affect short-term performance. Results of an
with underpriced, higher-yielding mortgage- investment made today may differ substantially from the historical performance
backed securities. shown.
Typically, we like an asset allocation
of approximately 60% Mortgages, 25% U.S. The performance figures shown represent the AIM V.I. Government Securities Fund
Treasury securities, 10% U.S. Agency and are not intended to reflect actual annuity values, and do not reflect
obligations, and 5% cash and cash charges at the separate account level which, if applied, would lower the
equivalents. As you can see from the performance results. The Fund's performance figures are historical and reflect
accompanying pie chart, we have returned reinvestment of all distributions and changes in the net asset value. The Funds'
the portfolio close to the levels that the investment return and principal value will fluctuate so that Fund shares, when
Fund prefers. redeemed, may be worth more ore less than their original cost. Source: Tower
Data Systems HYPO/Registered Trademark/.
The Lehman Brothers Intermediate Government Bond Index is an unmanaged
composite generally considered representative of intermediate U.S. Treasury and
U.S. government agency securities. Results shown here are for the period 4/30/93
through 12/31/98. Source: Lipper Analytical Services, Inc. Index results are for
the period 4/30/93-12/31/98.
An Investment cannot be made in the indexes listed. Index results include
reinvested dividends.
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND 79
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
U.S. GOVERNMENT AGENCY SECURITIES - 101.99%
FEDERAL FARM CREDIT BANK - 3.88%
Medium term notes
5.96%, 07/14/03 $ 200,000 $ 206,830
- ---------------------------------------------------------------------------
5.80%, 06/17/05 1,000,000 1,030,620
- ---------------------------------------------------------------------------
6.22%, 06/17/08 1,000,000 1,020,460
- ---------------------------------------------------------------------------
2,257,910
- ---------------------------------------------------------------------------
FEDERAL HOME LOAN BANK - 4.15%
Debentures
8.375%, 10/25/99 150,000 154,281
- ---------------------------------------------------------------------------
6.00%, 06/27/00 250,000 253,985
- ---------------------------------------------------------------------------
5.97%, 12/11/00 1,000,000 1,019,900
- ---------------------------------------------------------------------------
7.31%, 07/06/01 500,000 528,280
- ---------------------------------------------------------------------------
8.17%, 12/16/04 400,000 459,712
- ---------------------------------------------------------------------------
2,416,158
- ---------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. ("FHLMC") - 20.98%
Debentures
6.13%, 08/19/99 150,000 151,287
- ---------------------------------------------------------------------------
Pass through certificates
6.00%, 11/01/08 to 08/01/10 692,788 699,280
- ---------------------------------------------------------------------------
6.50%, 12/01/08 to 01/14/29 8,612,043 8,695,795
- ---------------------------------------------------------------------------
7.00%, 11/01/10 to 01/01/26 1,316,740 1,350,198
- ---------------------------------------------------------------------------
10.50%, 08/01/19 175,967 193,618
- ---------------------------------------------------------------------------
8.50%, 08/01/24 to 12/01/26 1,064,597 1,118,576
- ---------------------------------------------------------------------------
12,208,754
- ---------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - 35.73%
Debentures
4.696%, 06/02/99 500,000 499,600
- ---------------------------------------------------------------------------
8.25%, 12/18/00 500,000 531,060
- ---------------------------------------------------------------------------
7.50%, 02/01/02 1,350,000 1,445,756
- ---------------------------------------------------------------------------
7.55%, 04/22/02 400,000 430,612
- ---------------------------------------------------------------------------
8.50%, 02/01/05 500,000 516,845
- ---------------------------------------------------------------------------
5.75%, 06/15/05 500,000 513,945
- ---------------------------------------------------------------------------
Medium term notes
7.375%, 03/28/05 300,000 333,747
- ---------------------------------------------------------------------------
Pass through certificates
7.50%, 11/01/09 to 07/01/27 2,444,502 2,519,349
- ---------------------------------------------------------------------------
7.00%, 07/01/11 to 01/01/28 4,745,887 4,860,237
- ---------------------------------------------------------------------------
6.50%, 10/01/10 to 06/01/23(a)(b) 1,446,854 1,470,115
- ---------------------------------------------------------------------------
6.00%, 10/01/13 to 12/01/13 2,981,962 2,992,190
- ---------------------------------------------------------------------------
5.50%, 01/20/14(a)(b) 4,000,000 3,954,261
- ---------------------------------------------------------------------------
8.50%, 09/01/24 173,169 182,368
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA") - CONTINUED
STRIPS(a)
7.37%, 10/09/19 $1,800,000 $ 538,218
- ---------------------------------------------------------------------------
20,788,303
- ---------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION ("GNMA") - 31.68%
Pass through certificates
9.50%, 08/15/03 to 09/15/16 52,981 57,265
- ---------------------------------------------------------------------------
9.00%, 09/15/08 to 10/15/16 121,713 130,650
- ---------------------------------------------------------------------------
11.00%, 10/15/15 26,171 29,107
- ---------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 29,476 32,460
- ---------------------------------------------------------------------------
10.00%, 06/15/19 939,580 1,027,665
- ---------------------------------------------------------------------------
6.50%, 12/15/23 417,615 424,790
- ---------------------------------------------------------------------------
8.00%, 10/15/25 to 07/15/26 2,107,426 2,198,099
- ---------------------------------------------------------------------------
7.50%, 05/15/27 to 08/15/28 2,703,267 2,791,836
- ---------------------------------------------------------------------------
7.00%, 04/15/28 to 06/15/28 3,707,135 3,799,189
- ---------------------------------------------------------------------------
6.00%, 01/21/29(a)(b) 8,000,000 7,941,015
- ---------------------------------------------------------------------------
18,432,076
- ---------------------------------------------------------------------------
PRIVATE EXPORT FUNDING COMPANY - 0.55%
Debentures
7.30%, 01/31/02 300,000 318,633
- ---------------------------------------------------------------------------
STUDENT LOAN MARKETING ASSOCIATION - 1.39%
Debentures
4.838%, 02/22/99 500,000 499,900
- ---------------------------------------------------------------------------
5.55%, 12/15/99 150,000 151,125
- ---------------------------------------------------------------------------
6.50%, 08/01/02 150,000 157,262
- ---------------------------------------------------------------------------
808,287
- ---------------------------------------------------------------------------
TENNESSEE VALLEY AUTHORITY - 3.63%
Debentures
6.375%, 06/15/05 2,000,000 2,114,460
- ---------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $58,447,599) 59,344,581
- ---------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 20.37%
U.S. TREASURY NOTES & BONDS - 18.75%
6.125%, 12/31/01 500,000 520,840
- ---------------------------------------------------------------------------
6.00%, 07/31/02 300,000 313,026
- ---------------------------------------------------------------------------
5.25%, 08/15/03 3,500,000 3,590,545
- ---------------------------------------------------------------------------
5.50%, 02/15/08 1,000,000 1,059,290
- ---------------------------------------------------------------------------
6.875%, 08/15/25 500,000 606,180
- ---------------------------------------------------------------------------
6.125%, 11/15/27 1,500,000 1,679,850
- ---------------------------------------------------------------------------
5.50%, 08/15/28 3,000,000 3,140,910
- ---------------------------------------------------------------------------
10,910,641
- ---------------------------------------------------------------------------
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
80
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT MARKET VALUE
<S> <C> <C>
U.S. TREASURY STRIPS(c) - 1.62%
5.378%, 05/15/06 $ 750,000 $ 527,393
- -----------------------------------------------------------------------------
6.80%, 11/15/18 1,250,000 414,837
- -----------------------------------------------------------------------------
942,230
- -----------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $11,566,802) 11,852,871
- -----------------------------------------------------------------------------
REPURCHASE AGREEMENT - 6.74%(d)
SBC Warburg Dillion Read , Inc., 4.75%,
01/04/99(e) (Cost $3,921,882) 3,921,882 3,921,882
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS - 129.10% 75,119,334
- -----------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (29.10%) (16,934,653)
- -----------------------------------------------------------------------------
NET ASSETS - 100.00% $ 58,184,681
=============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) At 12/31/98, cost of securities purchased on a when-issued basis totaled
$15,929,375.
(b) These securities are subject to dollar roll transactions. See Note 1 of
Notes to Financial Statements.
(c) STRIPS are traded on a discount basis. In such cases the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75%, due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviation:
STRIPS - Separately Traded Registered Interest and Principal Security
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
81
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $73,936,283) $ 75,119,334
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 37,061
- ----------------------------------------------------------------------
Interest 482,349
- ----------------------------------------------------------------------
Investment for deferred compensation plan 21,587
- ----------------------------------------------------------------------
Other assets 6,610
- ----------------------------------------------------------------------
Total assets 75,666,941
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 15,929,375
- ----------------------------------------------------------------------
Capital stock reacquired 1,479,184
- ----------------------------------------------------------------------
Deferred compensation plan 21,587
- ----------------------------------------------------------------------
Accrued advisory fees 24,918
- ----------------------------------------------------------------------
Accrued administrative services fees 2,655
- ----------------------------------------------------------------------
Accrued operating expenses 24,541
- ----------------------------------------------------------------------
Total liabilities 17,482,260
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 58,184,681
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 5,205,570
- ----------------------------------------------------------------------
Net asset value, offering and redemption price per share $11.18
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $2,890,554
- --------------------------------------------------------------------
EXPENSES:
Advisory fees 221,956
- --------------------------------------------------------------------
Administrative services fees 43,129
- --------------------------------------------------------------------
Custodian fees 20,817
- --------------------------------------------------------------------
Directors' fees and expenses 8,172
- --------------------------------------------------------------------
Interest expense 20,591
- --------------------------------------------------------------------
Professional fees 27,641
- --------------------------------------------------------------------
Other 17,635
- --------------------------------------------------------------------
Total expenses 359,941
- --------------------------------------------------------------------
Net investment income 2,530,613
- --------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 241,993
- --------------------------------------------------------------------
Net unrealized appreciation of investment securities 445,919
- --------------------------------------------------------------------
Net gain on investment securities 687,912
- --------------------------------------------------------------------
Net increase in net assets resulting from operations $3,218,525
====================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GOVERNMENT SECURITIES FUND
82
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,530,613 $ 1,620,458
- ------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 241,993 (100,162)
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities 445,919 728,502
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,218,525 2,248,798
- ------------------------------------------------------------------------------
Dividends from net investment income (1,611,964) (15,600)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 22,778,324 7,040,082
- ------------------------------------------------------------------------------
Net increase in net assets 24,384,885 9,273,280
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 33,799,796 24,526,516
- ------------------------------------------------------------------------------
End of year $58,184,681 $33,799,796
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $54,757,995 $31,984,676
- ------------------------------------------------------------------------------
Undistributed net investment income 2,488,745 1,585,397
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (245,110) (507,409)
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities 1,183,051 737,132
- ------------------------------------------------------------------------------
$58,184,681 $33,799,796
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Government Securities Fund (the "Fund"). The Fund's investment
objective is to achieve a high level of current income consistent with
reasonable concern for safety of principal by investing in debt securities
issued, guaranteed or otherwise backed by the United States Government.
Currently, shares of the Fund are sold only to insurance company separate
accounts to fund the benefits of variable annuity contracts and variable life
insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - Debt obligations that are issued or guaranteed by the
U.S. Government, its agencies, authorities, and instrumentalities are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate, maturity and seasoning differential.
Securities for which market prices are not provided by the pricing service
are valued at the mean between last bid and asked prices based upon quotes
furnished by independent sources. Securities for which market quotations
are either not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Company's officers in a manner specifically authorized by the Board of
Directors. Short-term obligations having 60 days or less to maturity are
valued at amortized cost which approximates market value.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. The Fund may engage
in dollar roll transactions with respect to mortgage securities issued by
GNMA, FNMA and FHLMC. In a dollar roll transaction, the Fund sells a
mortgage security held in the portfolio to a financial institution such as
a bank or broker-dealer, and simultaneously agrees to repurchase a
substantially similar
AIM V.I. GOVERNMENT SECURITIES FUND
83
<PAGE>
security (same type, coupon and maturity) from the institution at a later
date at an agreed upon price. The mortgage securities that are repurchased
will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories. During the period between the sale and repurchase, the Fund will
not be entitled to receive interest and principal payments on the securities
sold. Proceeds of the sale will be reinvested in short-term instruments, and
the income from these investments, together with any additional fee income
received on the sale, could generate income for the Fund exceeding the yield
on the security sold.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the securities
that the Fund has sold but is obligated to repurchase under the agreement. In
the event the buyer of securities in a dollar roll transaction files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds from the sale
of the securities may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities.
Interest income is recorded as earned from settlement date and is recorded on
the accrual basis. Distributions to shareholders are recorded on the ex-
dividend date. Realized gains or losses from securities transactions are
recorded on the identified cost basis.
On December 31, 1998, undistributed net realized gain (loss) was increased
$20,306, undistributed net investment income was decreased $15,301 and paid
in capital was decreased $5,005 as a result of permanent book/tax difference
due to the differing book/tax treatment for principal paydown losses on
mortgage back securities. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - For federal income tax purposes, each portfolio in
the Company is taxed as a separate entity. It is the Fund's policy to
continue to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income and capital gains to its shareholders. Therefore, no
provision for federal income taxes is recorded in the financial statements.
The Fund had capital loss carryforwards (which may be carried forward to
offset future taxable capital gains, if any) of $180,497, which expires, if
not previously utilized, through the year 2004. The Fund cannot distribute
capital gains to shareholders until the tax loss carryforwards have been
utilized.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment
advisory agreement, the Fund pays an advisory fee to AIM at an annual rate of
0.50% of the first $250 million of the Fund's average daily net assets, plus
0.45% of the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $43,129 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$3,499 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest a director's
fees, if so elected by such director, in mutual fund shares in accordance with
a deferred compensation plan.
NOTE 4 - BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the
Fund, with an agreement that the Fund will repurchase such securities at an
agreed-upon price and date. Proceeds from reverse repurchase agreements are
treated as borrowings. The agreements are collateralized by the underlying
securities and are carried at the amount at which the securities will
subsequently be repurchased as specified in the agreements. The maximum amount
outstanding during the year ended December 31, 1998 was $3,683,750 while
borrowings averaged $940,485 per day with a weighted average interest rate of
2.19%. No borrowings existed at December 31, 1998.
The Fund will limit its borrowings from banks, reverse repurchase agreements
and dollar roll transactions to an aggregate of 33 1/3% of its total assets at
the time of investment. The Fund will not purchase additional securities when
any borrowings from banks exceed 5% of the Fund's total assets.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1998 was $55,684,558 and $33,064,108, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $1,245,286
- -------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (126,848)
- -------------------------------------------------------------------------
Net unrealized appreciation of investment securities $1,118,438
========================================================================-
</TABLE>
Cost of investments for tax purposes is $74,000,896.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sold 3,062,093 $34,224,621 1,272,288 $13,023,561
- ---------------------------------------------------------------------------
Issued as reinvestment of
dividends 144,183 1,611,964 1,468 15,600
- ---------------------------------------------------------------------------
Reacquired (1,168,506) (13,058,261) (591,274) (5,999,079)
- ---------------------------------------------------------------------------
2,037,770 $22,778,324 682,482 $ 7,040,082
===========================================================================
</TABLE>
AIM V.I. GOVERNMENT SECURITIES FUND
84
<PAGE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, the
eleven months ended December 31, 1995, the year ended January 31, 1995 and the
period May 5, 1993 (date operations commenced) through January 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24 $ 10.00
- -----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.63(a) 0.59 0.58 0.54 0.53 0.38
- -----------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 0.20 0.22 (0.35) 0.74 (0.88) 0.10
- -----------------------------------------------------------------------------------------------
Total from investment
operations 0.83 0.81 0.23 1.28 (0.35) 0.48
- -----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.32) (0.01) (0.53) (0.50) (0.50) (0.24)
- -----------------------------------------------------------------------------------------------
Net asset value, end of
period $ 11.18 $ 10.67 $ 9.87 $ 10.17 $ 9.39 $ 10.24
===============================================================================================
Total return(b) 7.73% 8.16% 2.29% 13.84% (3.42)% 4.78%
===============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s omitted) $58,185 $33,800 $24,527 $19,545 $12,887 $10,643
===============================================================================================
Ratio of expenses
(exclusive of interest
expense) to average net
assets 0.76%(c) 0.87% 0.91% 1.19%(d) 0.95%(e) 1.00%(d)(e)
===============================================================================================
Ratio of net investment
income to average net
assets 5.70%(c) 5.85% 5.80% 5.78%(d) 5.51%(f) 4.74%(d)(f)
===============================================================================================
Portfolio turnover rate 78% 66% 32% 41% 29% 0%
===============================================================================================
Borrowings for the
period:
Amount of debt
outstanding at end of
period (000s omitted) -- -- -- -- -- --
===============================================================================================
Average amount of debt
outstanding during the
period (000s omitted)(g) $ 940 -- -- -- -- --
===============================================================================================
Average number of shares
outstanding during the
period (000s omitted)(g) 3,992 -- -- -- -- --
===============================================================================================
Average amount of debt
per share during the
period $0.2355 -- -- -- -- --
===============================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are based on average net assets of $44,391,219.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.10% and 1.80% (annualized) for January 1995 and 1994, respectively.
(f) After fee waivers and/or expense reimbursements. Ratios of net investment
income to average net assets prior to fee waivers and/or expense
reimbursements were 5.35% and 3.94% (annualized) for January 1995 and
1994, respectively.
(g) Averages computed on a daily basis.
AIM V.I. GOVERNMENT SECURITIES FUND
85
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Government Securities Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1998, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, the eleven month period ended December 31, 1995, the year
ended January 31, 1995, and the period May 5, 1993 (commencement of operations)
through January 31, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Government Securities Fund, as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. GOVERNMENT SECURITIES FUND
86
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
LARGE CAPS CONTINUE TO
BUFFER MARKET TURMOIL
A roundtable discussion with the Fund management team for AIM V.I. Growth Fund
for the fiscal year ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. HOW DID AIM V.I. GROWTH FUND PERFORM Q. GIVEN CURRENT MARKET CONDITIONS, HOW ------------
DURING THE MARKET TURBULENCE IN 1998? DID YOU MANAGE THE PORTFOLIO?
A. The Fund continued to deliver solid A. The Fund holds both core and earnings- Large-cap stocks, which represented
performance despite market volatility momentum stocks. When we say "core"
during the year. For the fiscal year ended holdings, we are referring to companies more than 80% of the Fund's portfolio,
December 31, 1998, total return was an with long-term records of robust and
impressive 34.12%. Long-term performance reliable earnings growth. Earnings- did well in this changing environment,
for the Fund remained excellent, as shown momentum stocks refer to those seeing a
on the following page. recent burst of earnings growth. When the as they have for the past couple of years.
economy accelerates and most companies
Q. WHAT WERE THE MAJOR TRENDS IN THE STOCK exhibit strong earnings growth, we tend to ------------
MARKET DURING THE REPORTING PERIOD? increase our holdings of earnings-momentum
A. Stock performance was greatly affected stocks. However, in the current market consumer staples, 16.5%. We believe these
by the second wave of "Asian contagion" in environment, when the economy is expected three sectors continue to have excellent
1998 when currency troubles in Asia made to slow, we have reduced the number of long-term growth potential. During the
their way to the U.S. market. Russia's earnings-momentum holdings and invested in reporting period, we reduced our financial
bond default and the downturn that ensued the more stable and more predictable core holdings significantly while increasing
involved even the very large, very liquid holdings. Core holdings now represent 50% our holdings in the technology sector.
stocks that were chiefly responsible for of the Fund, compared to less than 25% a
the U.S. market's earlier rise. year ago. Q. WHY DID YOU REDUCE THE FUND'S HOLDING
Domestically, the market was hit by the At the close of the fiscal year, the IN THE FINANCIAL SECTOR?
collapse of several hedge funds. Fund's top sector holdings included: A. Financial stocks, which represented
The Federal Reserve Board (the Fed) cut technology, 33.5%; health care, 17.6%; and almost 20% of the Fund six months ago,
interest rates three times during the were reduced to 8.8% at the end of the
year, hoping to shelter the United States TOP 10 EQUITY HOLDINGS fiscal year largely because of volatility
from a potential global recession. Boosted in the global financial markets. Financial
by the Fed easing, the U.S. market halted As of 12/31/98, based on total net assets services stocks were among the hardest hit
its downturn and rebounded. Many stocks during the market downturn. Big money-
that had experienced losses earlier in the 1. America Online, Inc. 4.99% center banks, such as Chase Manhattan,
year were able to recover and post gains 2. MCI WorldCom, Inc. 4.94 also sustained huge losses due to their
due to the upswing. 3. International Business Machines involvement with the much-publicized
Corp. 2.25 collapse of several hedge funds.
4. Microsoft Corp. 2.14 We follow earnings growth for individual
Q. HOW DID DOMESTIC LARGE-CAP STOCKS FARE 5. Intel Corp. 2.12 companies, so our model picks up sectors
IN THIS UNCERTAIN MARKET? 6. Becton, Dickinson and Co. 1.77 that are showing relative earnings
A. Large-cap stocks, which represented 7. Warner-Lambert Co. 1.72 momentum. These market-sensitive financial
more than 80% of the Fund's portfolio, did 8. Freddie Mac 1.68 stocks no longer qualified on an
well in this changing environment, as they 9. Cisco Systems, Inc. 1.67
have for the past couple of years. Mid- 10. Pfizer, Inc. 1.62
sized and small-company stocks bore the
brunt of the market's summer correction as Please keep in mind that the Fund's
investors shifted their focus to large, portfolio composition is subject to change
well-established companies better able to and there is no assurance the Fund will
weather the volatile market. continue to hold any particular security.
AIM V.I. GROWTH FUND 87
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
earnings-momentum basis. The financial and western Europe have also helped to stimulated demand throughout the
holdings that are left in the Fund are offset the economic weakness in other technology food chain as the Internet
largely credit-sensitive companies, such regions. Sales of personal computers were infrastructure build-out drives business
as Fannie Mae and Freddie Mac, with less up 15% for the third quarter. for computer, networking and component
exposure to international woes. While the negative aspects of the Y2K companies. Despite the potential effects
problem have been well publicized, we of decreased demand overseas, we think the
Q. WHAT MAKES TECHNOLOGY STOCKS expect some companies in the computer technology sector's long-term growth
ATTRACTIVE? software and services industry to profit prospects are excellent.
A. As earnings momentum began to improve as they remedy the glitch. Of greater
for this sector, we increased its importance, the success of the Internet Q. WHAT IS YOUR OUTLOOK FOR THE FUTURE?
weighting in the Fund's portfolio. Strong and electronic commerce clearly has A. By and large, we are optimistic that
sales of personal computers in the U.S. benefited Internet service providers, such the U.S. market has performed a
as America Online. The Internet has also turnaround, coming back from its steep
declines in the summer. Market analysts
RESULTS OF A $10,000 INVESTMENT are optimistic that the United States will
avoid a recession in 1999. Economic growth
AIM V.I. S&P 500 seems to be decelerating, so low inflation
Growth Fund Stock Index and low interest rates should continue.
(In thousands) Although large-cap stocks should still
5/5/93 10,000 10,000 perform well, many analysts believe that
6/93 10,460 10,285 AVERAGE ANNUAL TOTAL RETURNS growth may be returning to the small- and
12/93 11,066 10,794 mid-cap markets. The narrowness of the
6/94 10,155 10,429 As of 12/31/98 market in the past is beginning to give
12/94 10,792 10,936 way to better performance from smaller
6/95 13,208 13,145 Inception (5/5/93) 20.87% companies. Given AIM V.I. Growth Fund's
12/95 14,544 15,042 5 Years 21.44 stake in the mid-cap portion of the
6/96 15,743 16,560 1 Year 34.12 market, which represented approximately
12/96 17,175 18,495 16% at the end of the fiscal year, we
6/97 19,839 22,305 believe the Fund is well positioned to
12/97 21,790 24,663 take advantage of this trend.
6/98 25,899 29,029
12/98 29,224 31,711
Market volatility can significantly affect short-term performance. Results
of an investment made today may differ substantially from the historical
performance shown.
The performance figures shown represent AIM V.I. Growth Fund and are not
intended to reflect actual annuity values, and do not reflect charges at
the separate account level which, if applied, would lower the performance
results. The Fund's performance figures are historical and reflect
reinvestment of all distributions and changes in net asset value. The
Fund's investment return and principal value will fluctuate so that Fund
shares, when redeemed, may be worth more or less than their original cost.
Source: Towers Data Systems HYPO--Registered Trademark--.
The Standard & Poor's Composite of 500 Stocks (S&P 500) is a group of
unmanaged securities widely regarded by investors to be representative of
the stock market in general. Data for the S&P 500 are for the period
4/30/93-12/31/98.
An investment cannot be made in any index listed. Index results include
reinvested dividends.
</TABLE>
88 AIM V.I. GROWTH FUND
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 86.97%
BANKS (REGIONAL) - 0.40%
North Fork Bancorporation, Inc. 62,000 $ 1,484,125
- ------------------------------------------------------------------
BEVERAGES (NON-ALCOHOLIC) - 0.63%
PepsiCo, Inc. 57,700 2,362,094
- ------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.82%
Chancellor Media Corp.(a) 60,500 2,896,437
- ------------------------------------------------------------------
Clear Channel Communications, Inc.(a) 42,476 2,314,942
- ------------------------------------------------------------------
Comcast Corp.-Class A 66,000 3,873,375
- ------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 49,500 3,421,687
- ------------------------------------------------------------------
Infinity Broadcasting Corp.-Class A(a) 63,500 1,738,312
- ------------------------------------------------------------------
Jacor Communications, Inc.(a) 41,000 2,639,375
- ------------------------------------------------------------------
Liberty Media Group(a) 21,600 994,950
- ------------------------------------------------------------------
Tele-Communications, Inc.-Class A(a) 68,000 3,761,250
- ------------------------------------------------------------------
21,640,328
- ------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 0.52%
Monsanto Co. 40,800 1,938,000
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.70%
Lucent Technologies, Inc.(b)(c) 23,500 2,585,000
- ------------------------------------------------------------------
COMPUTERS (HARDWARE) - 5.33%
Compaq Computer Corp. 78,800 3,304,675
- ------------------------------------------------------------------
Dell Computer Corp.(a)(b) 74,000 5,415,875
- ------------------------------------------------------------------
International Business Machines Corp. 45,200 8,350,700
- ------------------------------------------------------------------
Sun Microsystems, Inc.(a) 32,000 2,740,000
- ------------------------------------------------------------------
19,811,250
- ------------------------------------------------------------------
COMPUTERS (NETWORKING) - 3.73%
3Com Corp.(a) 77,500 3,472,969
- ------------------------------------------------------------------
Ascend Communications, Inc.(a) 63,975 4,206,356
- ------------------------------------------------------------------
Cisco Systems, Inc.(a) 66,550 6,176,672
- ------------------------------------------------------------------
13,855,997
- ------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.99%
EMC Corp.(a) 43,500 3,697,500
- ------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 10.98%
America Online, Inc. 116,000 18,560,000
- ------------------------------------------------------------------
BMC Software, Inc.(a) 74,000 3,297,625
- ------------------------------------------------------------------
Compuware Corp.(a) 48,000 3,750,000
- ------------------------------------------------------------------
HBO & Co. 53,000 1,520,437
- ------------------------------------------------------------------
Microsoft Corp.(a) 57,300 7,946,794
- ------------------------------------------------------------------
Oracle Corp.(a) 93,000 4,010,625
- ------------------------------------------------------------------
Unisys Corp.(a) 51,000 1,756,313
- ------------------------------------------------------------------
40,841,794
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CONSUMER FINANCE - 0.60%
Providian Financial Corp. 30,000 $ 2,250,000
- --------------------------------------------------------------
DISTRIBUTORS (FOOD & HEALTH) - 2.05%
AmeriSource Health Corp.-Class A(a) 24,100 1,566,500
- --------------------------------------------------------------
Cardinal Health, Inc. 61,500 4,666,312
- --------------------------------------------------------------
McKesson Corp. 6,500 513,906
- --------------------------------------------------------------
Sysco Corp. 31,800 872,513
- --------------------------------------------------------------
7,619,231
- --------------------------------------------------------------
ELECTRICAL EQUIPMENT - 2.58%
AMP, Inc. 20,000 1,041,250
- --------------------------------------------------------------
General Electric Co. 40,000 4,082,500
- --------------------------------------------------------------
Sanmina Corp.(a) 9,000 562,500
- --------------------------------------------------------------
SCI Systems, Inc.(a) 32,300 1,865,325
- --------------------------------------------------------------
Symbol Technologies, Inc. 31,800 2,033,213
- --------------------------------------------------------------
9,584,788
- --------------------------------------------------------------
ELECTRONICS (SEMICONDUCTORS) - 6.11%
Advanced Micro Devices, Inc.(a) 33,600 972,300
- --------------------------------------------------------------
Altera Corp.(a) 45,000 2,739,375
- --------------------------------------------------------------
Analog Devices, Inc.(a) 60,000 1,882,500
- --------------------------------------------------------------
Intel Corp. 66,600 7,896,262
- --------------------------------------------------------------
LSI Logic Corp.(a) 78,000 1,257,750
- --------------------------------------------------------------
Micron Technology, Inc.(a) 26,000 1,314,625
- --------------------------------------------------------------
National Semiconductor Corp.(a) 76,200 1,028,700
- --------------------------------------------------------------
Texas Instruments, Inc. 40,000 3,422,500
- --------------------------------------------------------------
Xilinx, Inc.(a) 34,000 2,214,250
- --------------------------------------------------------------
22,728,262
- --------------------------------------------------------------
ENTERTAINMENT - 1.08%
Time Warner, Inc. 64,600 4,009,238
- --------------------------------------------------------------
EQUIPMENT (SEMICONDUCTOR) - 0.51%
Applied Materials, Inc.(a) 44,000 1,878,250
- --------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 5.93%
American Express Co. 14,000 1,431,500
- --------------------------------------------------------------
Fannie Mae 61,200 4,528,800
- --------------------------------------------------------------
Freddie Mac 97,000 6,250,437
- --------------------------------------------------------------
MBIA, Inc. 58,400 3,828,849
- --------------------------------------------------------------
MGIC Investment Corp. 44,799 1,783,560
- --------------------------------------------------------------
SunAmerica, Inc. 52,000 4,218,500
- --------------------------------------------------------------
22,041,646
- --------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
89
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HEALTH CARE (DIVERSIFIED) - 3.86%
Abbott Laboratories 52,200 $ 2,557,800
- ---------------------------------------------------------------------
American Home Products Corp. 18,000 1,013,625
- ---------------------------------------------------------------------
Bristol-Myers Squibb Co. 22,300 2,984,019
- ---------------------------------------------------------------------
Johnson & Johnson 17,000 1,425,875
- ---------------------------------------------------------------------
Warner-Lambert Co. 85,000 6,390,937
- ---------------------------------------------------------------------
14,372,256
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.31%
Mylan Laboratories, Inc. 65,600 2,066,400
- ---------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(a) 44,900 2,823,088
- ---------------------------------------------------------------------
4,889,488
- ---------------------------------------------------------------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 5.54%
Lilly (Eli) & Co. 55,600 4,941,450
- ---------------------------------------------------------------------
Merck & Co., Inc. 11,000 1,624,562
- ---------------------------------------------------------------------
Pfizer, Inc. 48,000 6,021,000
- ---------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 96,900 5,486,962
- ---------------------------------------------------------------------
Schering-Plough Corp. 46,000 2,541,500
- ---------------------------------------------------------------------
20,615,474
- ---------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.65%
Arterial Vascular Engineering, Inc.(a) 45,000 2,362,500
- ---------------------------------------------------------------------
Baxter International, Inc. 4,800 308,700
- ---------------------------------------------------------------------
Becton, Dickinson & Co. 154,000 6,573,875
- ---------------------------------------------------------------------
Biomet, Inc. 49,500 1,992,375
- ---------------------------------------------------------------------
Guidant Corp. 38,200 4,211,550
- ---------------------------------------------------------------------
Medtronic, Inc. 25,000 1,856,250
- ---------------------------------------------------------------------
17,305,250
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.58%
Procter & Gamble Co. (The) 23,500 2,145,844
- ---------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.13%
Nationwide Financial Services, Inc.-Class A 9,600 496,200
- ---------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.34%
American International Group, Inc. 12,900 1,246,463
- ---------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.33%
Paine Webber Group, Inc. 31,700 1,224,413
- ---------------------------------------------------------------------
INVESTMENT MANAGEMENT - 0.21%
Franklin Resources, Inc. 10,900 348,800
- ---------------------------------------------------------------------
T. Rowe Price Associates, Inc. 12,900 441,825
- ---------------------------------------------------------------------
790,625
- ---------------------------------------------------------------------
LODGING - HOTELS - 1.41%
Carnival Corp.-Class A 109,300 5,246,400
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
MANUFACTURING (DIVERSIFIED) - 0.61%
Tyco International Ltd. 30,000 $ 2,263,125
- ------------------------------------------------------------------
NATURAL GAS - 0.66%
Enron Corp. 43,000 2,453,688
- ------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 3.01%
Home Depot, Inc. (The) 97,000 5,935,188
- ------------------------------------------------------------------
Lowe's Companies, Inc. 103,100 5,277,431
- ------------------------------------------------------------------
11,212,619
- ------------------------------------------------------------------
RETAIL (COMPUTERS & ELECTRONICS) - 0.56%
Best Buy Co., Inc.(a) 34,000 2,086,750
- ------------------------------------------------------------------
RETAIL (DRUG STORES) - 0.43%
CVS Corp. 29,000 1,595,000
- ------------------------------------------------------------------
RETAIL (FOOD CHAINS) - 1.74%
Albertson's, Inc. 29,000 1,846,937
- ------------------------------------------------------------------
Kroger Co.(a) 43,000 2,601,500
- ------------------------------------------------------------------
Safeway, Inc.(a) 33,000 2,010,938
- ------------------------------------------------------------------
6,459,375
- ------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 1.57%
Costco Companies, Inc.(a)(b) 30,000 2,165,625
- ------------------------------------------------------------------
Dayton Hudson Corp. 33,000 1,790,250
- ------------------------------------------------------------------
Wal-Mart Stores, Inc. 23,000 1,873,063
- ------------------------------------------------------------------
5,828,938
- ------------------------------------------------------------------
RETAIL (SPECIALTY) - 2.68%
Office Depot, Inc.(a) 154,000 5,688,375
- ------------------------------------------------------------------
Staples, Inc.(a) 98,000 4,281,375
- ------------------------------------------------------------------
9,969,750
- ------------------------------------------------------------------
RETAIL (SPECIALTY - APPAREL) - 0.36%
Gap, Inc. (The) 24,050 1,352,812
- ------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 1.12%
Outdoor Systems, Inc.(a) 139,450 4,183,500
- ------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.22%
Service Corp. International 21,500 818,344
- ------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 0.57%
Keane, Inc.(a) 53,100 2,120,681
- ------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 1.24%
Ceridian Corp.(a) 26,900 1,877,956
- ------------------------------------------------------------------
Equifax, Inc. 34,400 1,176,050
- ------------------------------------------------------------------
Fiserv, Inc.(a) 30,150 1,550,841
- ------------------------------------------------------------------
4,604,847
- ------------------------------------------------------------------
</TABLE>
AIM V.I. GROWTH FUND
90
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE) - 4.94%
MCI WorldCom, Inc.(a) 256,243 $ 18,385,435
- -------------------------------------------------------------------------------
TOBACCO - 0.94%
Philip Morris Companies, Inc. 65,000 3,477,500
- -------------------------------------------------------------------------------
Total Domestic Common Stocks (Cost $204,614,000) 323,472,280
- -------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 3.10%
FINLAND - 0.41%
Nokia Oyj A.B.-Class A-ADR (Communications Equipment) 5,700 686,494
- -------------------------------------------------------------------------------
Nokia Oyj A.B.-Class A (Communications Equipment) 6,800 827,234
- -------------------------------------------------------------------------------
1,513,728
- -------------------------------------------------------------------------------
FRANCE - 0.27%
Renault S.A. (Automobiles) 22,500 1,010,377
- -------------------------------------------------------------------------------
IRELAND - 0.54%
Elan Corp. PLC-ADR (Health Care-Drugs-Generic &
Other)(a) 29,000 2,017,313
- -------------------------------------------------------------------------------
NETHERLANDS - 1.00%
Philips Electronics N.V. (Electrical Equipment) 19,000 1,274,625
- -------------------------------------------------------------------------------
Philips Electronics N.V.-ADR-New York Shares
(Electrical Equipment) 36,000 2,436,750
- -------------------------------------------------------------------------------
3,711,375
- -------------------------------------------------------------------------------
SWITZERLAND - 0.88%
Nestle S.A. (Foods) 1,500 3,266,093
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$10,115,291) 11,518,886
- -------------------------------------------------------------------------------
OPTIONS PURCHASED - 0.00%
NUMBER OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUTS - 0.00%
Lucent Technologies, Inc.
(Communications Equipment
(Cost $118,378) 157 $95 Jan-99 8,831
- --------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.84%
SWITZERLAND - 0.84%
Nestle Holding Inc., Conv. Bond, 3.00%,
06/17/02 (Cost $2,941,380) $2,200,000 3,105,903
- -----------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.49%(d)
Goldman, Sachs & Co., 4.40%, 01/04/99(e) (Cost
$31,583,054) 31,583,054 31,583,054
- -----------------------------------------------------------------------
TOTAL INVESTMENTS - 99.40% 369,688,954
- -----------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.60% 2,225,797
- -----------------------------------------------------------------------
NET ASSETS - 100.00% $371,914,751
======================================================================-
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Non-income producing security.
(b) A portion of this security is subject to call options.
(c) A portion of this security is subject to put options.
(d) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value is at least 102% of the sales
price of the repurchase agreement. The investments in some repurchase
agreements are through participation in joint accounts with other mutual
funds, private accounts, and certain non-registered investment companies
managed by the investment advisor or its affiliates.
(e) Joint repurchase agreements entered into 12/31/98 with a maturing value of
$700,342,222. Collaterialized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
91
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value (cost $249,372,103) $369,688,954
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 1,229,040
- ----------------------------------------------------------------------
Investments sold 2,040,256
- ----------------------------------------------------------------------
Dividends and interest 224,599
- ----------------------------------------------------------------------
Investment for deferred compensation plan 23,264
- ----------------------------------------------------------------------
Other assets 1,985
- ----------------------------------------------------------------------
Total assets 373,208,098
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 61,353
- ----------------------------------------------------------------------
Deferred compensation plan 23,264
- ----------------------------------------------------------------------
Options written (Premiums received $739,850) 953,563
- ----------------------------------------------------------------------
Accrued advisory fees 186,515
- ----------------------------------------------------------------------
Accrued directors' fees 2,560
- ----------------------------------------------------------------------
Accrued administrative services fees 3,637
- ----------------------------------------------------------------------
Accrued operating expenses 62,455
- ----------------------------------------------------------------------
Total liabilities 1,293,347
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $371,914,751
======================================================================
CAPITAL STOCK, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 14,997,262
======================================================================
Net asset value, offering and redemption price per share $24.80
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $48,337 foreign withholding tax) $ 1,895,594
- ------------------------------------------------------------------------------
Interest 1,514,487
- ------------------------------------------------------------------------------
Total investment income 3,410,081
- ------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,941,818
- ------------------------------------------------------------------------------
Administrative services fees 50,535
- ------------------------------------------------------------------------------
Custodian fees 98,543
- ------------------------------------------------------------------------------
Directors' fees and expenses 12,859
- ------------------------------------------------------------------------------
Other 79,110
- ------------------------------------------------------------------------------
Total expenses 2,182,865
- ------------------------------------------------------------------------------
Less: Expenses paid indirectly (2,844)
- ------------------------------------------------------------------------------
Net expenses 2,180,021
- ------------------------------------------------------------------------------
Net investment income 1,230,060
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES AND OPTIONS CONTRACTS:
Net realized gain (loss) from:
Investment securities 22,750,448
- ------------------------------------------------------------------------------
Foreign currencies 87,369
- ------------------------------------------------------------------------------
Futures contracts 1,100,047
- ------------------------------------------------------------------------------
Options contracts (1,680,833)
- ------------------------------------------------------------------------------
22,257,031
- ------------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 67,962,858
- ------------------------------------------------------------------------------
Foreign currencies 4,310
- ------------------------------------------------------------------------------
Options contracts 90,382
- ------------------------------------------------------------------------------
68,057,550
- ------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies, futures
and options contracts 90,314,581
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations $91,544,641
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH FUND
92
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,230,060 $ 1,211,773
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and options
contracts 22,257,031 22,109,980
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies, futures and
options contracts 68,057,550 28,069,985
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 91,544,641 51,391,738
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,180,373) (1,119,140)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (22,129,920) (8,443,286)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 44,828,633 38,384,566
- ------------------------------------------------------------------------------
Net increase in net assets 113,062,981 80,213,878
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 258,851,770 178,637,892
- ------------------------------------------------------------------------------
End of year $371,914,751 $258,851,770
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $228,798,661 $183,975,681
- ------------------------------------------------------------------------------
Undistributed net investment income 1,289,508 1,182,806
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, futures and
options contracts 21,719,134 21,643,385
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures and options
contracts 120,107,448 52,049,898
- ------------------------------------------------------------------------------
$371,914,751 $258,851,770
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Growth Fund (the "Fund"). The Fund's investment objective is
to seek growth of capital principally through investment in common stocks of
seasoned and better capitalized companies considered by AIM to have strong
earnings momentum. Currently, shares of the Fund are sold only to insurance
company separate accounts to fund the benefits of variable annuity contracts
and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If no mean is
available, as is the case in some foreign markets, the closing bid will be
used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices
are not provided by any of the above methods are valued at the mean between
last bid and asked prices based upon quotes furnished by independent
sources. Securities for which market quotations either are not readily
available or are questionable are valued at fair value as determined in
good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors.
AIM V.I. GROWTH FUND
93
<PAGE>
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in foreign
securities is substantially completed each day at various times prior to the
close of the New York Stock Exchange. The values of such securities used in
computing the net asset value of the Fund's shares are determined as of such
times. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. Occasionally, events affecting the
values of such securities and such exchange rates may occur between the times
at which they are determined and the close of the New York Stock Exchange
which will not be reflected in the computation of the Fund's net asset value.
If events materially affecting the value of such securities occur during such
period, then these securities will be valued at their fair value as
determined in good faith by or under the supervision of the Board of
Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1998
additional paid-in capital was decreased by $5,653, undistributed net
investment income was increased by $57,015 and undistributed net realized
gains was decreased by $51,362 in order to comply with the requirements of
the American Institute of Certified Public Accountants Statement of
Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash as collateral for the
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
F. Put options - The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The option's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
G. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
H. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock-in" the U.S. dollar price of that
security. The Fund could be
AIM V.I. GROWTH FUND
94
<PAGE>
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I
M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $50,535 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$4,004 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $2,844 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $2,844 during the year ended
December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees,
if so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1998 was
$385,017,854 and $363,389,349, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $120,017,053
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,102,014)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $118,915,039
===========================================================================
</TABLE>
Cost of investments for tax purposes is $250,773,915.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,345,258 $52,301,342 2,757,339 $ 51,600,352
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 1,005,621 23,310,293 492,909 9,562,426
- -----------------------------------------------------------------------------
Reacquired (1,407,943) (30,783,002) (1,185,922) (22,778,212)
- -----------------------------------------------------------------------------
1,942,936 $44,828,633 2,064,326 $ 38,384,566
=============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of period 1,815 $ 531,904
- -------------------------------------------
Written 10,693 5,020,455
- -------------------------------------------
Closed (7,461) (3,712,050)
- -------------------------------------------
Exercised (2,378) (653,704)
- -------------------------------------------
Expired (1,472) (446,755)
- -------------------------------------------
End of period 1,197 $ 739,850
===========================================
</TABLE>
Open call options held at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUM 1998 APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- ----- -------- ------ --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Costco Companies, Inc. Jan. 99 55 300 $182,544 $528,750 $(346,206)
- --------------------------------------------------------------------------------------
Dell Computer Corp. Jan. 99 70 740 422,526 356,125 66,401
- --------------------------------------------------------------------------------------
Lucent Technologies,
Inc. Jan. 99 110 157 134,780 68,688 66,092
- --------------------------------------------------------------------------------------
1,197 $739,850 $953,563 $(213,713)
======================================================================================
</TABLE>
AIM V.I. GROWTH FUND
95
<PAGE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the
Fund during each of the years in the three-year period ended December 31,
1998, the eleven months ended December 31, 1995, the year ended January
31, 1995, and the period May 5, 1993 (date operations commenced) through
January 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
----------------------------------------- -----------------
1998 1997 1996 1995 1995 1994
-------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59 $ 10.00
- ------------------------ -------- -------- -------- -------- ------- -------
Income from investment
operations:
Net investment income 0.08 0.08 0.07 0.09 0.06 0.02
- ------------------------ -------- -------- -------- -------- ------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 6.57 4.27 2.52 3.65 (0.88) 1.59
- ------------------------ -------- -------- -------- -------- ------- -------
Total from investment
operations 6.65 4.35 2.59 3.74 (0.82) 1.61
- ------------------------ -------- -------- -------- -------- ------- -------
Less distributions:
Dividends from net
investment income (0.09) (0.09) (0.06) (0.01) (0.06) (0.02)
- ------------------------ -------- -------- -------- -------- ------- -------
Distributions from net
realized gains (1.59) (0.68) (0.72) -- -- --
- ------------------------ -------- -------- -------- -------- ------- -------
Total distributions (1.68) (0.77) (0.78) (0.01) (0.06) (0.02)
- ------------------------ -------- -------- -------- -------- ------- -------
Net asset value, end of
period $ 24.80 $ 19.83 $ 16.25 $ 14.44 $ 10.71 $ 11.59
======================== ======== ======== ======== ======== ======= =======
Total return(a) 34.12% 26.87% 18.09% 34.89% (7.11)% 16.07%
======================== ======== ======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $371,915 $258,852 $178,638 $102,600 $45,497 $25,115
======================== ======== ======== ======== ======== ======= =======
Ratio of expenses to
average net assets 0.72%(b) 0.73% 0.78% 0.84%(c) 0.95% 0.85%(c)(d)
======================== ======== ======== ======== ======== ======= =======
Ratio of net investment
income to average net
assets 0.41%(b) 0.54% 0.79% 0.95%(c) 0.71% 0.51%(c)(d)
======================== ======== ======== ======== ======== ======= =======
Portfolio turnover rate 133% 132% 143% 125% 179% 99%
======================== ======== ======== ======== ======== ======= =======
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $302,803,063.
(c) Annualized.
(d) After fee waivers and/or expense reimbursement. Ratios of
expenses and net investment income (loss) to average net assets
prior to fee waivers and/or expense reimbursements were 1.50%
(annualized) and (0.14)% (annualized), respectively.
AIM V.I. GROWTH FUND
96
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1998, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the three years in the period then ended,
the eleven month period ended December 31, 1995, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth Fund, as of December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the three years
in the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995 and the period May 5, 1993 (commencement of
operations) through January 31, 1994 in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. GROWTH FUND
97
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The Managers' Overview
FUND POSTS STRONG
RESULTS IN TURBULENT YEAR
A roundtable discussion with the Fund management team for AIM V.I. Growth &
Income Fund for the fiscal year ended December 31, 1998.
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Q. THIS YEAR WAS PARTICULARLY UNSETTLING Near the end of the fiscal year, the on companies that benefited from a healthy
FOR THE STOCK MARKET. HOW DID THE FUND Federal Reserve Board (the Fed) addressed albeit slowing, U.S. economy. We favored
PERFORM? concerns about credit by lowering interest discount retailers such as Dayton Hudson
A. The Fund reported an excellent total rates three times. In response, equity (owner of Target stores), Wal-Mart and
return of 27.68% during the fiscal year markets staged an astounding rally. In Walgreens. We also increased our position
ended December 31, 1998, a year of record November, a number of mega-mergers also in MCI WorldCom, which was created in
market volatility. The Fund kept pace with fueled large-stock performance. With the September 1998 by one of the largest
the S&P 500, which finished the year at market comeback, 1998 became the unprece- mergers in corporate history. We expect
28.60%. dented fourth year of double-digit market this global telecommunications powerhouse
gains for indexes such as the S&P 500. to produce solid earnings growth into the
Q. WHAT WERE MARKET CONDITIONS LIKE DURING next century.
THE FISCAL YEAR? Q. HAVE YOU CHANGED THE WAY YOU MANAGE THE We also raised our stake in convertible
A. The first half of the reporting period FUND AS A RESULT OF MARKET CONDITIONS? securities. At the end of the fiscal year
saw strong performance from the U.S. and A. We reduced the number of holdings over 10.40% of the portfolio consisted of
European stock markets. But beginning in the fiscal year as we began to see convertible corporate bonds and 6.07% was
July, markets fell as fears of a global earnings deterioration throughout many in convertible preferred stocks. Our
credit crunch spread from emerging markets sectors of the economy. At the same time, convertible holdings include names
to the developed markets of the United we increased our emphasis on companies like Internet leader America Online,
States and Europe. Other factors adding with less exposure to global economic retailer Home Depot, and cable operator
to the market decline included a Russian problems and, therefore, less risk to their Media One.
default on government debt, the Asian future growth prospects. We also focused The Fund invests in convertibles because
financial crisis and the collapse of some these securities have the characteristics
highly leveraged hedge funds. of both stocks and bonds. Since the Fund's
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
TOP 10 HOLDINGS TOP 10 INDUSTRIES
1. Philip Morris Companies, Inc. 2.86% 1. Computers (Software & Services) 8.14% Convertible bonds, 10.40%
2. Pfizer Inc. 2.58 2. Financial (Diversified) 7.64 Convertible preferred stock, 6.07%
3. General Electric Co. 2.51 3. Health Care (Drugs-Major Pharmaceuticals) 6.62 U.S. Government Bonds, 1.26%
4. Microsoft Corp. 2.31 4. Computers (Hardware) 4.21 Cash & Cash Equivalents, 1.55%
5. MCI WorldCom, Inc. 2.27 5. Heath Care (Diversified) 4.10
6. Tyco International Ltd. 2.03 6. Electrical Equipment 4.08
7. Chase Manhattan Corp. (The) 1.89 7. Health Care (Medical Products & Supplies) 3.90
8. America Online, Inc. 1.71 8. Broadcasting (Radio, Television & Cable) 3.68 Common stock, 80.72%
9. Wal-Mart Stores, Inc. 1.61 9. Telephone 3.65
10. Cisco Systems, Inc. 1.58 10. Telecommunictions (Long Distance) 3.52
NUMBER OF HOLDINGS: 139
Please keep in mind that the Fund's portfolio composition is subject to change and there is no assurance the Fund will continue
to hold any particular security.
98 AIM V.I. GROWTH & INCOME FUND
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--------------------
fact, we consider many of these stocks to optimistic that the United States will
Because of our be long-term buying opportunities. We avoid a recession in 1999. The economy is
believe these companies eventually will likely to experience annual gross domestic
conservative investment approach, emerge as leaders in the increasingly product growth in the 1.5% to 2% range, so
consolidating global financial environment. low inflation and low interest rates
which focuses on companies with In the technology sector, the Fund held should continue. However, with global
Microsoft as a major technology position markets experiencing weakness and the
strong earnings prospects, because of its outstanding earnings U.S. economy expanding more slowly, many
performance, especially in its most recent companies will find it difficult to
we remain confident that the Fund quarter. produce earnings growth. Because of our
conservative investment approach, which
is positioned well Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND focuses on companies with strong earnings
EQUITY MARKETS? prospects, we remain confident that the
as we enter the coming year. A. We expect the markets to experience Fund is positioned well as we enter the
continued volatility, perhaps as severe as coming year.
-------------------- it was in 1998. At the same time, we're
investment goals are to seek growth and
income, convertible securities offer the GROWTH OF A 10,000 INVESTMENT
best of both worlds.
From 5/2/94-12/31/98
Q. WHAT SECTORS DID THE FUND TARGET? AVERAGE ANNUAL TOTAL RETURN
A. The Fund maintained its positions in AIM V.I. Growth Lipper Growth &
its top three sectors: financial stocks & Income Fund S&P 500 Income Fund Index As of 12/31/98
including major credit card companies and (In thousands)
mortgage securities firms; health care, 5/2/94 $10,000 $10,000 $10,000
especially pharmaceutical stocks; and 6/30/94 9,770 9,903 9,918 Inception (5/2/94) 22.49%
computer software and services companies. 12/31/94 9,999 10,384 10,154 5 Years 24.41
Earnings growth for major U.S. drug 6/30/95 12,012 12,481 11,850 1 Year 27.68
companies has been strong in recent years 12/31/95 13,385 14,283 13,316
for several reasons, including expedited 6/30/96 14,641 15,724 14,443
product approval by the Federal Drug 12/31/96 16,054 17,561 16,069
Administration, growing demand from an 6/30/97 18,735 21,179 18,632
aging population, and the recent success 12/31/97 20,183 23,418 20,388
of new drugs. Top holdings for the Fund 6/30/98 23,093 27,564 22,756
included Pfizer, maker of the blockbuster 12/31/98 25,771 30,109 23,157
drug Viagra. We also owned Pharmacia & Past performance cannot guarantee comparable future results.
Upjohn, Merck, Warner-Lambert, Bristol-
Myers Squibb, Johnson & Johnson and Eli Market volatility can significantly affect short-term performance. Results of an
Lilly. investment made today may differ substantially from the historical performance shown.
The Fund's financial holdings included
banking firms Chase Manhattan and The performance figures shown represent the AIM V.I. Growth and Income Fund
BankAmerica, brokerage firms Merrill Lynch and are not intended to reflect actual annuity values, and do not reflect
and Morgan Stanley Dean Witter, insurance charges at the separate account level which, if applied, would lower the
provider AIG, and credit-card company performance results. The Fund's performance figures are historical and
American Express. In the last quarter of reflect reinvestment of all distributions and changes in the net asset value.
the fiscal year, many financial stocks in The Fund's investment return and principal value will fluctuate so that Fund
the Fund's portfolio were significantly shares, when redeemed, may be worth more or less than their original cost.
affected by the global economic crisis. Source: Towers Data Systems HYPO(REGISTERED TRADEMARK).
But we continue to hold these stocks The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
because we believe these are solid group of unmanaged securities widely regarded by investors as representative
companies with strong franchises. In of the stock market in general.
The unmanaged Lipper Growth & Income Fund Index represents an average
of the performance of the 30 largest growth-and-income mutual funds. It is
compiled by Lipper Inc., an independent mutual fund performance monitor. Data
for the S&P 500 and the Lipper Index are for the period 4/30/93-12/31/98.
An investment cannot be made in any indexes listed. Index results
include reinvested dividends.
AIM V.I. GROWTH & INCOME FUND 99
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SCHEDULE OF INVESTMENTS
December 31, 1998
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MARKET
SHARES VALUE
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COMMON STOCKS - 80.72%
AUTOMOBILES - 1.00%
Ford Motor Co. 215,000 $ 12,617,812
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BANKS (MONEY CENTER) - 2.36%
BankAmerica Corp. 100,000 6,012,500
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Chase Manhattan Corp. (The) 350,000 23,821,875
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29,834,375
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BROADCASTING (RADIO, TELEVISION & CABLE) - 1.32%
Comcast Corp. - Class A 175,000 10,270,313
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Infinity Manhattan Corp. - Class A(a) 231,300 6,331,838
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16,602,151
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CHEMICALS (DIVERSIFIED) - 1.22%
Monsanto Co. 325,000 15,437,500
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COMMUNICATIONS EQUIPMENT - 0.79%
Lucent Technologies, Inc. 90,000 9,900,000
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COMPUTERS (HARDWARE) - 3.78%
Compaq Computer Corp.(b) 170,000 7,129,375
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Dell Computer Corp.(a) 200,000 14,637,500
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Hewlett-Packard 110,000 7,514,375
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International Business Machines Corp. 65,000 12,008,750
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Sun Microsystems, Inc.(a) 75,000 6,421,875
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47,711,875
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COMPUTERS (NETWORKING) - 2.00%
Ascend Communications, Inc.(a) 80,000 5,260,000
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Cisco Systems, Inc.(a) 215,000 19,954,687
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25,214,687
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COMPUTERS (SOFTWARE & SERVICES) - 5.01%
BMC Software, Inc.(a) 225,000 10,026,562
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Computer Sciences Corp.(a) 100,000 6,443,750
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Compuware Corp.(a)(b) 60,000 4,687,500
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HBO & Co. 200,000 5,737,500
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Microsoft Corp.(a) 210,000 29,124,375
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Novell, Inc.(a) 400,000 7,250,000
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63,269,687
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CONSUMER FINANCE - 0.97%
MBNA Corp. 219,100 5,463,824
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Providian Financial Corp. 90,000 6,750,000
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12,213,824
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DISTRIBUTORS (FOOD & HEALTH) - 0.91%
Bergen Brunswig Corp. - Class A 83,000 2,894,625
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Cardinal Health, Inc. 112,500 8,535,937
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11,430,562
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MARKET
SHARES VALUE
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ELECTRIC COMPANIES - 1.19%
Duke Power Co. 90,000 $ 5,765,625
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Edison International 200,000 5,575,000
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FPL Group, Inc. 60,000 3,697,500
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15,038,125
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ELECTRICAL EQUIPMENT - 3.51%
AMP, Inc. 150,000 7,809,375
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General Electric Co. 310,600 31,700,613
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Honeywell, Inc. 60,000 4,518,750
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Philips Electronics N.V. - New York Shares -ADR
(Netherlands) 3,800 257,213
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44,285,951
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ELECTRONICS (SEMICONDUCTORS) - 0.66%
Intel Corp. 70,000 8,299,375
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FINANCIAL (DIVERSIFIED) - 7.64%
American Express Co. 125,000 12,781,250
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Associates First Capital Corp. - Class A 150,000 6,356,250
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Citigroup, Inc. 375,000 18,562,500
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Fannie Mae 210,000 15,540,000
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Freddie Mac 300,000 19,331,250
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Morgan Stanley, Dean Witter, Discover & Co. 130,000 9,230,000
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SunAmerica, Inc. 180,000 14,602,500
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96,403,750
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HEALTH CARE (DIVERSIFIED) - 4.10%
Abbott Laboratories 90,000 4,410,000
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American Home Products Corp. 100,000 5,631,250
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Bristol-Myers Squibb Co. 130,000 17,395,625
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Johnson & Johnson 75,000 6,290,625
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Warner-Lambert Co. 240,000 18,045,000
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51,772,500
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HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS) - 6.62%
Lilly (Eli) & Co. 160,000 14,220,000
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Merck & Co., Inc. 130,000 19,199,375
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Pfizer, Inc. 260,000 32,613,750
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Pharmacia & Upjohn, Inc. 310,000 17,553,750
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83,586,875
- --------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 3.34%
Allegiance Corp. 100,000 4,662,500
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Arterial Vascular Engineering, Inc.(a) 125,000 6,562,500
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Baxter International, Inc. 80,700 5,190,019
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Becton, Dickinson & Co. 120,000 5,122,500
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Boston Scientific Corp.(a) 266,500 7,145,531
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Guidant Corp. 65,000 7,166,250
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Medtronic, Inc. 85,000 6,311,250
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42,160,550
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AIM V.I. GROWTH AND INCOME FUND
100
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MARKET
SHARES VALUE
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HEALTH CARE (SPECIALIZED SERVICES) - 0.76%
Omnicare, Inc. 275,000 $ 9,556,250
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HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.01%
Colgate-Palmolive Co. 125,000 11,609,375
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Procter & Gamble Co. (The) 150,000 13,696,875
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25,306,250
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HOUSEWARES - 0.23%
Newell Co. 19,000 783,750
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Rubbermaid, Inc. 65,000 2,043,438
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2,827,188
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INSURANCE (MULTI-LINE) - 0.77%
American International Group, Inc. 100,000 9,662,500
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INSURANCE (PROPERTY-CASUALTY) - 0.38%
Allstate Corp. (The) 125,000 4,828,125
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INVESTMENT BANKING/BROKERAGE - 0.74%
Merrill Lynch & Co., Inc. 140,000 9,345,000
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INVESTMENT MANAGEMENT - 0.35%
Franklin Resources, Inc. 140,000 4,480,000
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LODGING-HOTELS - 0.90%
Carnival Corp. - Class A(b) 237,000 11,376,000
- ---------------------------------------------------------------------------
MACHINERY (DIVERSIFIED) - 0.32%
Ingersoll-Rand Co. 86,300 4,050,706
- ---------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 3.08%
Corning, Inc. 150,000 6,750,000
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Tyco International Ltd. (Bermuda) 340,000 25,648,750
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United Technologies Corp. 59,000 6,416,250
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38,815,000
- ---------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 0.28%
Diebold, Inc. 100,000 3,568,750
- ---------------------------------------------------------------------------
NATURAL GAS - 1.47%
El Paso Natural Gas Co. 100,000 3,481,250
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Enron Corp. 150,000 8,559,375
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Williams Companies, Inc. (The) 210,000 6,549,375
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18,590,000
- ---------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 1.49%
Royal Dutch Petroleum Co. - New York Shares - ADR
(Netherlands) 260,000 12,447,500
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Texaco, Inc. 120,000 6,345,000
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18,792,500
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OIL & GAS (DRILLING & EQUIPMENT) - 1.88%
Baker Hughes, Inc. 375,000 6,632,812
- ---------------------------------------------------------------------------
Halliburton Co. 342,500 10,146,563
- ---------------------------------------------------------------------------
Schlumberger Ltd. 150,000 6,918,750
- ---------------------------------------------------------------------------
23,698,125
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MARKET
SHARES VALUE
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OIL & GAS (EXPLORATION & PRODUCTION) - 0.71%
Conoco, Inc.(a) 430,000 $ 8,976,250
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PERSONAL CARE - 0.35%
Avon Products, Inc. 100,000 4,425,000
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PHOTOGRAPHY/IMAGING - 0.84%
Xerox Corp. 90,000 10,620,000
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PUBLISHING - 0.34%
Dow Jones & Co., Inc. 90,000 4,331,250
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RAILROADS - 0.39%
Kansas City Southern Industries, Inc. 100,000 4,918,750
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RETAIL (BUILDING SUPPLIES) - 0.41%
Lowe's Companies, Inc. 100,000 5,118,750
- ----------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 1.35%
Federated Department Stores, Inc.(a) 100,000 4,356,250
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J.C. Penney Co., Inc. 130,000 6,093,750
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Saks, Inc.(a) 210,000 6,628,125
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17,078,125
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RETAIL (DISCOUNTERS) - 0.35%
Family Dollar Stores, Inc. 200,000 4,400,000
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RETAIL (DRUG STORES) - 0.53%
Walgreen Co. 115,000 6,734,688
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RETAIL (FOOD CHAINS) - 0.60%
Safeway, Inc.(a) 125,000 7,617,188
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RETAIL (GENERAL MERCHANDISE) - 2.54%
Dayton Hudson Corp. 215,000 11,663,750
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Wal-Mart Stores, Inc. 250,000 20,359,375
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32,023,125
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RETAIL (SPECIALTY) - 0.80%
Office Depot, Inc.(a) 171,400 6,331,088
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Staples, Inc.(a) 85,091 3,717,411
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10,048,499
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RETAIL (SPECIALTY-APPAREL) - 0.37%
TJX Companies, Inc. 160,000 4,640,000
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SAVINGS & LOAN COMPANIES - 0.45%
Washington Mutual, Inc. 150,000 5,728,125
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SERVICES (COMMERCIAL & CONSUMER) - 0.21%
Service Corp. International 70,000 2,664,375
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SERVICES (DATA PROCESSING) - 0.62%
Equifax, Inc. 100,000 3,418,750
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Fiserv, Inc.(a) 85,000 4,372,188
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7,790,938
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101
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MARKET
SHARES VALUE
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TELECOMMUNICATIONS (LONG DISTANCE) - 2.27%
MCI WorldCom, Inc.(a) 400,000 $ 28,700,000
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TELEPHONE - 3.65%
AT&T Corp. 63,100 4,779,825
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Ameritech Corp. 135,000 8,555,625
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BellSouth Corp. 280,000 13,965,000
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GTE Corp. 100,000 6,743,750
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SBC Communications, Inc. 225,000 12,065,625
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46,109,825
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TOBACCO - 2.86%
Philip Morris Companies, Inc. 675,000 36,112,500
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Total Common Stocks (Cost $766,711,907) 1,018,713,381
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DOMESTIC CONVERTIBLE PREFERRED STOCKS - 6.07%
BROADCASTING (TELEVISION, RADIO & CABLE) - 2.07%
Chancellor Media Corp., $3.00 Conv. Pfd. 75,000 7,429,687
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MediaOne Group, Inc., $3.63 Conv. Pfd. 125,000 8,312,500
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MediaOne Group, Inc., $2.25 Series D Conv. Pfd. 110,000 10,450,000
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26,192,187
- ---------------------------------------------------------------------------
CHEMICALS (DIVERSIFIED) - 0.43%
Monsanto Co., $2.60 Conv. Pfd. 110,000 5,390,000
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ELECTRIC COMPANIES - 1.06%
Houston Industries, Inc. - $3.22 Conv. Pfd. 125,500 13,350,063
- ---------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 0.56%
McKesson Financing Trust, $2.50 Conv. Pfd. 65,000 7,076,875
- ---------------------------------------------------------------------------
HOUSEWARES - 0.19%
Newell Financial Trust, Inc., $2.625 Conv. Pfd. 47,000 2,479,250
- ---------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.42%
Conseco, Inc. - $4.278 Conv. PRIDES 50,000 5,275,000
- ---------------------------------------------------------------------------
LODGING - HOTELS - 0.52%
Royal Caribbean Cruises Ltd. - $3.63 Conv. Pfd. 56,000 6,636,000
- ---------------------------------------------------------------------------
RETAIL (DRUG STORES) - 0.48%
CVS Corp., $4.23 Conv. Pfd. 60,000 6,011,250
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TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.34%
Loral Space & Communications Ltd., $3.00 Conv. Pfd. 80,000 4,250,000
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Total Domestic Convertible Preferred Stocks (Cost
$65,636,173) 76,660,625
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PRINCIPAL MARKET
AMOUNT VALUE
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CONVERTIBLE CORPORATE BONDS - 10.03%
AUTO PARTS & EQUIPMENT - 0.24%
Magna International, Inc., Conv. Sub. Deb., 4.875%,
02/15/05 $3,000,000 $ 3,086,250
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BROADCASTING (TELEVISION, RADIO & CABLE) - 0.29%
Jacor Communications, Inc., Conv. Sr. LYON, 5.50%,
06/12/11(c) 4,000,000 3,590,000
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COMMUNICATIONS EQUIPMENT - 0.30%
Comverse Technology, Inc., Conv. Sub. Deb. 4.50%,
07/01/05(d) (Acquired 06/25/98; Cost $3,000,000) 3,000,000 3,795,000
- -------------------------------------------------------------------------------
COMPUTERS (HARDWARE) - 0.43%
Candescent Technology Corp., Conv. Sr. Sub. Deb.,
7.00%, 05/01/03(d) (Acquired 04/17/98; Cost
$5,862,772) 6,000,000 5,400,000
- -------------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 1.35%
EMC Corp., Conv. Sub. Notes, 3.25%, 03/15/02 4,500,000 16,965,000
- -------------------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 3.13%
America Online, Inc., Conv. Sub. Notes, 4.00%,
11/15/02 3,500,000 21,555,625
- -------------------------------------------------------------------------------
America Online, Inc., Conv. Sub. Notes, 4.00%,
11/15/02(d) (Acquired 02/10/98; Cost $2,499,041) 2,000,000 12,317,500
- -------------------------------------------------------------------------------
Veritas Software Corp., Conv. Unsec. Sub. Notes,
5.25%, 11/01/04 3,500,000 5,656,875
- -------------------------------------------------------------------------------
39,530,000
- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.57%
SCI Systems, Inc., Conv. Sub. Notes, 5.00%, 05/01/06 3,000,000 7,136,250
- -------------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 0.32%
Loews Corp., Conv. Sub. Notes, 3.125%, 09/15/07 5,000,000 4,000,000
- -------------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.63%
Home Depot, Inc., Conv. Sub. Notes, 3.25%, 10/01/01 3,000,000 7,968,750
- -------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 0.54%
Costco Companies, Inc. Conv. Sub. Notes, 3.50%,
08/19/17(e) 8,000,000 6,860,000
- -------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.36%
Affiliated Computer Services, Conv. Sub. Notes,
4.00%, 03/15/05 1,750,000 2,136,093
- -------------------------------------------------------------------------------
Affiliated Computer Services, Conv. Sub. Notes,
4.00%, 03/15/05(d) (Acquired 03/17/98; Cost
$2,006,875) 2,000,000 2,441,250
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4,577,343
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PRINCIPAL MARKET
AMOUNT VALUE
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TELECOMMUNICATIONS (LONG DISTANCE) - 1.25%
Global Telesystems Group, Inc., Conv. Sr. Sub.
Deb., 8.75%, 06/30/00 $ 500,000 $ 1,408,750
- --------------------------------------------------------------------------
Global Telesystems Group, Inc., Conv. Sr. Sub.
Deb., 8.75%, 06/30/00(d) (Acquired 02/05/98;
Cost $1,950,312) 1,500,000 4,226,250
- --------------------------------------------------------------------------
Global Telesystems Group, Inc., Conv. Sr. Sub.
Deb., 5.75%, 07/01/10 9,000,000 10,158,750
- --------------------------------------------------------------------------
15,793,750
- --------------------------------------------------------------------------
WASTE MANAGEMENT - 0.62%
USA Waste Services, Inc., Conv. Sub. Notes,
4.50%, 06/01/01 5,000,000 7,843,750
- --------------------------------------------------------------------------
Total Convertible Corporate Bonds
(Cost $76,598,280) 126,546,093
- --------------------------------------------------------------------------
FOREIGN CONVERTIBLE NOTES - 0.37%
SERVICES - COMMERCIAL & CONSUMER - 0.37%
Airtours PLC, Conv. Sub. Notes, 5.75% 01/05/04(d)(e)
(Acquired 02/05/98; Cost $4,514,585) GBP 2,729,000 4,660,046
- --------------------------------------------------------------------------
Total Foreign Convertible Notes
(Cost $4,514,585) 4,660,046
- --------------------------------------------------------------------------
U.S. TREASURY SECURITIES - 1.26%
9.125%, 05/15/99 10,000,000 10,161,400
- --------------------------------------------------------------------------
11.75%, 02/15/01 5,000,000 5,716,450
- --------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $16,353,828) 15,877,850
- --------------------------------------------------------------------------
REPURCHASE AGREEMENT(f) - 2.81%
Goldman Sachs & Co., 4.40%, 01/04/99(g)
(Cost $35,491,011) 35,491,011 35,491,011
- --------------------------------------------------------------------------
TOTAL INVESTMENTS SECURITIES - 101.26% 1,277,949,006
- --------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (1.26)% (15,890,237)
- --------------------------------------------------------------------------
NET ASSETS - 100.00% $1,262,058,769
==========================================================================
</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 8.
(c) Zero coupon bond issued at a discount. Interest rate shown represents the
rate of original issue discount.
(d) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with the procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/98 was $32,840,046
which represented 2.60% of the Fund's net assets.
(e) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(f) Collateral on repurchase agreements, including the Fund's pro-rata
interest in joint repurchase agreements, is taken into possession by the
Fund upon entering into the repurchase agreement. The collateral is marked
to market daily to ensure its market value is at least 102% of the sales
price of the repurchase agreement. The investments in some repurchase are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(g) Joint repurchase agreements entered into 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Investment Abbreviations:
ADR - American Depositary Receipt
Conv. - Convertible
Deb. - Debentures
Gtd. - Guaranteed
LYON - Liquid Yield Option Notes
Pfd. - Preferred
PRIDES - Preferred Redeemable Increased Dividend Equity Security
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
103
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $965,305,784) $1,277,949,006
- ------------------------------------------------------------------------
Receivables for:
Investments sold 24,131,504
- ------------------------------------------------------------------------
Capital stock sold 636,098
- ------------------------------------------------------------------------
Dividends and interest 2,075,051
- ------------------------------------------------------------------------
Investment for deferred compensation plan 21,235
- ------------------------------------------------------------------------
Other assets 14,825
- ------------------------------------------------------------------------
Total assets 1,304,827,719
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 39,326,193
- ------------------------------------------------------------------------
Capital stock reacquired 1,033,605
- ------------------------------------------------------------------------
Deferred compensation plan 21,235
- ------------------------------------------------------------------------
Options written (Premiums received $617,471) 1,728,012
- ------------------------------------------------------------------------
Accrued advisory fees 612,379
- ------------------------------------------------------------------------
Accrued directors' fees 325
- ------------------------------------------------------------------------
Accrued operating expenses 47,201
- ------------------------------------------------------------------------
Total liabilities 42,768,950
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,262,058,769
========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ------------------------------------------------------------------------
Outstanding 53,131,024
========================================================================
Net asset value, offering and redemption price per share $23.75
========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $135,103 foreign withholding tax) $ 10,826,657
- ------------------------------------------------------------------------------
Interest 7,206,342
- ------------------------------------------------------------------------------
Total investment income 18,032,999
- ------------------------------------------------------------------------------
EXPENSES:
Advisory fees 5,556,833
- ------------------------------------------------------------------------------
Administrative services fees 60,729
- ------------------------------------------------------------------------------
Custodian fees 119,817
- ------------------------------------------------------------------------------
Directors' fees and expenses 15,043
- ------------------------------------------------------------------------------
Interest expense (Note 4) 58,555
- ------------------------------------------------------------------------------
Other 90,585
- ------------------------------------------------------------------------------
Total expenses 5,901,562
- ------------------------------------------------------------------------------
Less: Expenses paid indirectly (18,086)
- ------------------------------------------------------------------------------
Net expenses 5,883,476
- ------------------------------------------------------------------------------
Net investment income 12,149,523
- ------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FUTURES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 7,206,698
- ------------------------------------------------------------------------------
Foreign currencies (127,792)
- ------------------------------------------------------------------------------
Futures contracts (845,486)
- ------------------------------------------------------------------------------
Option contracts (1,146,650)
- ------------------------------------------------------------------------------
5,086,770
- ------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 224,947,459
- ------------------------------------------------------------------------------
Foreign currencies 5,448
- ------------------------------------------------------------------------------
Futures contracts 277,200
- ------------------------------------------------------------------------------
Option contracts (905,620)
- ------------------------------------------------------------------------------
224,324,487
- ------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies,
futures and option contracts 229,411,257
- ------------------------------------------------------------------------------
Net increase in net assets resulting from operations $241,560,780
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. GROWTH AND INCOME FUND
104
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 12,149,523 $ 4,767,618
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, futures and option
contracts 5,086,770 9,736,106
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies, futures and
option contracts 224,324,487 66,989,418
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 241,560,780 81,493,142
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (4,873,870) (326,695)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (12,029,125) (490,042)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 398,288,439 349,104,509
- ------------------------------------------------------------------------------
Net increase in net assets 622,946,224 429,780,914
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 639,112,545 209,331,631
- ------------------------------------------------------------------------------
End of year $1,262,058,769 $639,112,545
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 935,990,892 $537,626,187
- ------------------------------------------------------------------------------
Undistributed net investment income 11,997,368 4,850,844
- ------------------------------------------------------------------------------
Undistributed net realized gain on sales from
investment securities, foreign currencies,
futures and option contracts 2,532,381 9,421,873
- ------------------------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 311,538,128 87,213,641
- ------------------------------------------------------------------------------
$1,262,058,769 $639,112,545
==============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Growth and Income Fund (the "Fund"). The Fund's investment
objective is to seek growth of capital, with current income as a secondary
objective. Currently, shares of the Fund are sold only to insurance company
separate accounts to fund the benefits of variable annuity contracts and
variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices
are not provided by any of the above methods are valued at the mean between
the last bid and asked prices based upon quotes furnished by independent
sources. Securities for which market quotations either are not readily
available or are questionable are valued at fair value as determined in
good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value. Generally, trading in foreign securities
is
AIM V.I. GROWTH AND INCOME FUND
105
<PAGE>
substantially completed each day at various times prior to the close of the
New York Stock Exchange. The values of such securities used in computing the
net asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of
the New York Stock Exchange. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange which will
not be reflected in the computation of the Fund's net asset value. If events
materially affecting the value of such securities occur during such period,
then these securities will be valued at their fair value as determined in
good faith by or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions-Securities
transactions are accounted for on a trade date basis. Interest income is
recorded as earned from settlement date and is recorded on the accrual
basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Realized gains or losses from securities transactions
are recorded on the identified cost basis. On December 31, 1998, paid-in
capital was increased by $76,266, undistributed net investment income was
decreased by $129,129 and undistributed net realized gains increased by
$52,863 in order to comply with the requirements of the American Institute
of Certified Public Accountants Statement of Position 93-2. Net assets of
the Fund were unaffected by the reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities as collateral for the account of
the broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contracts may not correlate with changes in the value of the securities
being hedged.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written. The Fund will
not write a covered call option if, immediately thereafter, the aggregate
value of the securities underlying all such options, determined as of the
dates such options were written, would exceed 25% of the net assets of the
Fund.
H. Put options - The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
options's underlying instrument at a fixed strike price. In return for this
right, a Fund pays an option premium. The options's underlying instrument
may be a security, or a futures contract. Put options may be used by a Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM
AIM V.I. GROWTH AND INCOME FUND
106
<PAGE>
at an annual rate of 0.65% of the first $250 million of the Fund's average
daily net assets, plus 0.60% of the Fund's average daily net assets in excess
of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $60,729 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$4,825 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $18,086 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $18,086 during the year ended
December 31, 1998.
NOTE 4 - BORROWINGS
Reverse repurchase agreements involve the sale of securities held by the Fund,
with an agreement that the Fund will repurchase such securities at an agreed-
upon price and date. Proceeds from reverse repurchase agreements are treated
as borrowings. The agreements are collateralized by the underlying securities
and are carried at the amount at which the securities will subsequently be
repurchased as specified in the agreements. The maximum amount outstanding
during the period ended December 31, 1998 was $18,886,000 while borrowings
averaged $1,028,866 per day with a weighted average interest rate of 5.60%.
NOTE 5 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 6 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1998 was $1,628,755,153 and $1,243,229,582, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $315,376,411
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,991,857)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $305,384,554
===========================================================================
</TABLE>
Cost of investments for tax purposes is $972,564,452.
NOTE 7 - CAPITAL STOCK
Changes in capital stock outstanding during the year ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 19,890,074 $409,625,526 20,645,975 $361,699,824
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 751,578 16,902,995 44,268 816,737
- ------------------------------------------------------------------------------
Reacquired (1,379,171) (28,240,082) (745,032) (13,412,052)
- ------------------------------------------------------------------------------
19,262,481 $398,288,439 19,945,211 $349,104,509
==============================================================================
</TABLE>
NOTE 8 - CALL OPTION CONTRACTS WRITTEN
Transactions in call options written during the year ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of year 3,100 $ 624,245
- -----------------------------------------
Written 47,846 11,523,972
- -----------------------------------------
Closed (37,960) (9,750,978)
- -----------------------------------------
Exercised (6,648) (1,542,256)
- -----------------------------------------
Expired (3,671) (237,512)
- -----------------------------------------
End of year 2,667 $ 617,471
=========================================
</TABLE>
Open call option contracts written at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER
31, 1998 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
ISSUE MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ----- -------- ------ --------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Carnival Corp. Jan $40 750 $226,440 $ 585,938 $ (359,498)
- -------------------------------------------------------------------------------------
Compaq Computer Corp. Jan 37 1/2 1,450 213,143 715,937 (502,794)
- -------------------------------------------------------------------------------------
Compuware Corp. Jan 70 467 177,888 426,137 (248,249)
- -------------------------------------------------------------------------------------
2,667 $617,471 $1,728,012 $(1,110,541)
=====================================================================================
</TABLE>
AIM V.I. GROWTH AND INCOME FUND
107
<PAGE>
NOTE 9 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, the
eleven months ended December 31, 1995 and the period May 2, 1994 (date
operations commenced) through January 31, 1995.
<TABLE>
<CAPTION>
December 31,
------------------------------------------ January 31,
1998 1997 1996 1995 1995
---------- -------- -------- ------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 18.87 $ 15.03 $ 12.68 $ 9.98 $10.00
- ----------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.26(a) 0.13 0.16 0.14 0.11
- ----------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 4.95 3.74 2.36 3.11 (0.02)
- ----------------------------------------------------------------------------------------
Total from investment
operations 5.21 3.87 2.52 3.25 0.09
- ----------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.09) (0.01) (0.14) (0.14) (0.11)
- ----------------------------------------------------------------------------------------
Distributions from net
realized gains (0.24) (0.02) (0.03) (0.41) --
- ----------------------------------------------------------------------------------------
Total distributions (0.33) (0.03) (0.17) (0.55) (0.11)
- ----------------------------------------------------------------------------------------
Net asset value, end of
period $ 23.75 $ 18.87 $ 15.03 $ 12.68 $ 9.98
========================================================================================
Total return(b) 27.68% 25.72% 19.95% 32.65% 0.90%
========================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $1,262,059 $639,113 $209,332 $38,567 $7,380
========================================================================================
Ratio of expenses to
average net assets 0.65%(c) 0.69% 0.78% 0.78%(d) 1.07%(d)(e)
========================================================================================
Ratio of net investment
income to average net
assets 1.34%(c) 1.15% 2.05% 1.92%(d) 1.95%(d)(e)
========================================================================================
Portfolio turnover rate 140% 135% 148% 145% 96%
========================================================================================
</TABLE>
(a) Calculated using average shares outstanding.
(b) Total returns are not annualized for periods less than one year.
(c) Ratios are based on average net assets of $905,305,521.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average net assets prior to fee waivers and/or
expense reimbursements were 1.72% (annualized) and 1.30% (annualized),
respectively.
AIM V.I. GROWTH AND INCOME FUND
108
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Growth Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1998, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the three years in the period then ended,
the eleven month period ended December 31, 1995, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth Fund, as of December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the three years
in the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995 and the period May 5, 1993 (commencement of
operations) through January 31, 1994 in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. GROWTH AND INCOME FUND
109
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND FOCUSES ON QUALITY IN DIFFICULT MARKET
A roundtable discussion with the Fund management team for AIM V.I. High Yield
Fund for the period ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. THE MARKET EXPERIENCED ALL-TIME HIGHS Q. WHAT WERE THE MAJOR TRENDS IN THE ---------------
AND ONE OF ITS MOST VICIOUS CORRECTIONS FINANCIAL MARKETS SINCE THE FUND'S
DURING 1998. HOW DID AIM V.I. HIGH YIELD INCEPTION? Volatility in the high-yield market
FUND PERFORM IN THIS UNSETTLING ENVIRONMENT? A. Beginning in July, markets succumbed to
A. We have been in a very challenging the second wave of "Asian contagion" when created some exceptional values
environment during 1998. The Fund has currency troubles in Asia made their way
suffered from a combination of oversupply to the United States. A month later, in higher-quality debt.
and weakened demand, as well as from the Russia's bond default and the downturn
"flight to quality" following a succession that ensued involved even the very large, ---------------
of global currency crises. For the very liquid stocks that were chiefly
reporting period from the Fund's inception responsible for the U.S. markets' earlier
on May 1, 1998, to December 31, 1998, rise. Domestically, the markets were hit recession. Boosted by the Fed easing, the
total return was -7.61%. The Fund by the collapse of several hedge funds. U.S. markets rebounded and led the way for
commenced offering during the high point Investors sought shelter from market recovery in many foreign markets.
in the market, when spreads were at their volatility in the safest and most liquid
narrowest. By comparison, the Lipper High investment classes, particularly U.S. Q. HOW DID HIGH-YIELD BONDS FARE IN THIS
Current Yield Funds Index returned -4.59 % Treasury securities. MARKET TURBULENCE?
from April 30, 1998, to the end of the The Federal Reserve Board (the Fed) A. High-yield bonds were hit hard during
reporting period. announced the first of three interest rate the summer "flight to quality" when
cuts in September, hoping to shelter the
United States from a potential global
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
TOP 10 HOLDINGS TOP 10 INDUSTRIES NUMBER OF HOLDINGS: 61
1. Metrocall, Inc. 4.31% 1. Gaming, Lottery & Pie Chart
2. Decora Industries, Inc. 4.03 Pari-mutuel Companies 12.18%
3. American Skiing Co. 3.94 2. Telecommunications Domestic Preferred Stock 1.04%
4. Circus Circus Enterprise 3.91 (Cellular/Wireless) 11.26 Other 3.02%
5. Venetian Casino Resort LLC 3.83 3. Lodging-Hotels 7.33 Cash/Cash Equivalents 4.57%
6. Exodus Communications 3.80 4. Manufacturing (Specialized) 7.02 Non-investment Grade Corporate Bonds 91.37%
7. Nextel Communications, Inc. 3.11 5. Health Care
8. Versatel Telecom B.V. (Medical Products & Supplies) 6.34
(New Zealand) 2.56 6. Telecommunications
9. Dobson Communications Corp. 2.55 (Long Distance) 5.37
10. Alliance Imaging 2.50 7. Retail (Specialty) 5.00
8. Broadcasting (Television,
Radio & Cable) 4.38
9. Computers (Networking) 4.35
10. Housewares 4.03
Please keep in mind that the Fund's portfolio composition is subject to change and there is no assurance the Fund will continue to
hold any particular security.
</TABLE>
110 AIM V.I. HIGH YIELD FUND
<PAGE>
<TABLE>
<S> <C> <C>
investors turned to U.S. Treasury recession in 1999. Economic growth seems
securities for their relative safety. to be decelerating, so low inflation and
Record levels of new high-yield issuance low interest rates should continue.
also went unmet by demand starting in Historically, November to February is,
August, generating broad-based volatility on average, the best-performing period in
in the high-yield market. These factors the high-yield market, adding
combined with falling corporate profits approximately 15% on an annualized basis.
and rising default rates deteriorated the With the yield spreads between high-yield
performance of high-yield bonds. AIM V.I. bonds and 10-year U.S. Treasury securities
High Yield Fund had no defaults, although at their widest since 1991, many analysts
those sectors that have had defaults have believe that high-yield bonds represent a
experienced greater spread widening. good bargain for the near term. Investors
After a devastating third quarter, may be rewarded by the appreciation that
the worst in almost eight years, the high- should occur as yields return to more
yield market began to recover, boosted by normal levels.
the Fed's interest rate cuts. Liquidity With a slowing economy expected in 1999,
slowly returned to the market, as new the key to continuing recovery in the high-
issuance reappeared. During November, more yield market will be corporate earnings in
than $2.5 billion in new corporate debt the coming months. As the rate of defaults
entered the market, led by a group of fast- continues to increase due to more volatile
growing telecommunications companies. market conditions, we believe that credit
quality will become more of a
Q. GIVEN CURRENT MARKET CONDITIONS, HOW differentiating factor in total return
HAVE YOU MANAGED THE PORTFOLIO? performance. We remain focused on
A. During the fourth quarter, as maintaining the Fund's credit quality in
volatility in the high-yield market this turbulent environment. ---------------
continued, we focused on increasing
quality in the Fund's portfolio. The unmanaged Lipper High Current Yield . . . many analysts believe that
Volatility in the high-yield market Funds Index represents an average of the
created some exceptional values in higher- performance of the 30 largest high-yield high-yield bonds
quality debt. We added holdings in the funds charted by Lipper, Inc., an
higher-quality BB segment of the market. independent mutual fund performance represent a good bargain
We maintained an overall single-B rating monitor. Results shown reflect
for the Fund, as rated by Standard & reinvestment of dividends. for the near term.
Poor's (S&P), a widely known credit-rating Because the Fund has been offered for
agency. less than one year (since 5/1/98), total ---------------
At the close of the fiscal year, the return figures reflect cumulative total
Fund's largest holdings were in return that has not yet been annualized.
telecommunications and in gaming, lottery Higher-yielding, lower-rated corporate
and pari-mutuel companies. These bonds, commonly known as "junk bonds,"
industries continue to offer strong have a greater risk of price fluctuation
fundamentals despite weakening economic and loss of principal and income than U.S.
conditions. The Fund remained as fully Treasury securities, which offer a
invested as possible but maintained a government guarantee as to the repayment
4.57% cash position at the end of the of principal and interest if held to
fiscal year to take advantage of more maturity. Purchasers should carefully
attractively priced issues in the near assess the risks associated with an
term. investment in this Fund.
Q. WHAT IS YOUR OUTLOOK FOR 1999?
A. By and large, we are optimistic that
the U.S. high-yield market has stabilized
and improved from its steep declines in
the summer. Market analysts are optimistic
that the United States will avoid a
</TABLE>
AIM V.I. HIGH YIELD FUND 111
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES - 91.37%
AEROSPACE/DEFENSE - 1.42%
Pacific Aerospace & Electronics, Inc., Sr. Sub. Notes,
11.25%, 08/01/05(a) (Acquired 07/24/98; Cost $150,000) $150,000 $ 113,250
- -------------------------------------------------------------------------------
AIR FREIGHT - 1.99%
Atlas Air, Inc., Sr. Unsec. Notes, 10.75%, 08/01/05 150,000 158,250
- -------------------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 3.26%
EchoStar DBS Corp., Sr. Sec. Gtd. Notes, 12.50%, 07/01/02 150,000 174,000
- -------------------------------------------------------------------------------
Park N View, Inc., Series B Sr. Notes, 13.00%,
05/15/08(b) 100,000 85,500
- -------------------------------------------------------------------------------
259,500
- -------------------------------------------------------------------------------
BUILDING MATERIALS - 2.37%
Congoleum Corp., Sr. Unsec. Notes, 8.625%, 08/01/08 100,000 99,000
- -------------------------------------------------------------------------------
Imperial Home Decor Group, Series B Sr. Unsec. Gtd. Sub.
Notes, 11.00%, 03/15/08 100,000 89,500
- -------------------------------------------------------------------------------
188,500
- -------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 4.35%
Convergent Communications, Series B Sr. Unsec. Notes,
13.00%, 04/01/08(c) 90,000 43,650
- -------------------------------------------------------------------------------
Exodus Communications, Sr. Unsec. Notes, 11.25%, 07/01/08 300,000 303,000
- -------------------------------------------------------------------------------
346,650
- -------------------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.76%
Metal Management, Inc., Sr. Unsec. Gtd. Sub. Notes,
10.00%, 05/15/08 100,000 60,500
- -------------------------------------------------------------------------------
CONSTRUCTION (CEMENT & AGGREGATES) - 1.65%
Schuff Steel Co., Sr. Unsec. Gtd. Sub. Notes, 10.50%,
06/01/08 150,000 131,250
- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING (PAPER) - 1.05%
BPC Holding Corp., Series B Sr. Sec. Notes, 12.50%,
06/15/06 80,000 83,600
- -------------------------------------------------------------------------------
FOODS - 0.80%
RAB Enterprise, Inc., Sr. Notes, 13.00%, 05/01/08(a)
(Acquired 05/05/98; Cost $90,900) 90,000 63,450
- -------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 12.18%
Alliance Gaming Corp., Series B Sr. Unsec. Gtd. Sub.
Notes, 10.00%, 08/01/07 100,000 90,500
- -------------------------------------------------------------------------------
Circus Circus Enterprises, Inc., Sr. Sub. Notes, 9.25%,
12/01/05 300,000 311,175
- -------------------------------------------------------------------------------
Majestic Star Casino, LLC, Sr. Sec. Notes, 12.75%,
05/15/03 150,000 156,750
- -------------------------------------------------------------------------------
Resort at Summerlin/RAS Co., Sr. Unsec. Sub. PIK Notes,
13.00%, 12/15/07 111,000 106,005
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GAMING, LOTTERY & PARIMUTUEL COMPANIES - (CONTINUED)
Venetian Casino Resort LLC, Sec. Gtd. Mortgage Notes,
12.25%, 11/15/04 $ 325,000 $ 305,500
- -------------------------------------------------------------------------------
969,930
- -------------------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.91%
Biovail Corp., Sr. Notes, 10.875%, 11/15/05(a) (Acquired
11/10/98 - 11/24/98; Cost $151,650) 150,000 152,250
- -------------------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.34%
Alaris Medical, Inc., Sr. Disc. Notes, 11.125%,
08/01/08(a)(d) (Acquired 07/23/98; Cost $121,856) 200,000 110,000
- -------------------------------------------------------------------------------
Alliance Imaging, Sr. Sub. Notes, 9.625%, 12/15/05 200,000 199,000
- -------------------------------------------------------------------------------
Everest Healthcare Services Corp., Sr. Unsec. Gtd. Sub.
Notes, 9.75%, 05/01/08 100,000 99,500
- -------------------------------------------------------------------------------
Mediq, Inc., Sr. Unsec. Gtd. Sub. Notes, 11.00%, 06/01/08 100,000 96,500
- -------------------------------------------------------------------------------
505,000
- -------------------------------------------------------------------------------
HOMEBUILDING - 0.24%
Schuler Homes, Sr. Unsec. Gtd. Notes, 9.00%, 04/15/08 20,000 19,500
- -------------------------------------------------------------------------------
HOUSEWARES - 4.03%
Decora Industries, Inc., Series B Sr. Sec. Gtd. Notes,
11.00%, 05/01/05 340,000 321,300
- -------------------------------------------------------------------------------
LODGING-HOTELS - 7.33%
American Skiing Co., Series B Sr. Sub. Notes, 12.00%,
07/15/06 300,000 313,500
- -------------------------------------------------------------------------------
Booth Creek Ski Holdings, Sr. Unsec. Gtd. Notes, 12.50%,
03/15/07 90,000 89,550
- -------------------------------------------------------------------------------
Stena Line A.B. (Sweden), Sr. Unsec. Yankee Notes,
10.625%, 06/01/08 200,000 181,000
- -------------------------------------------------------------------------------
584,050
- -------------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 2.47%
Anthony Crane Rentals, Sr. Notes, 10.375%, 08/01/08(a)
(Acquired 07/15/98 - 07/20/98; Cost $100,375) 100,000 96,500
- -------------------------------------------------------------------------------
Generac Portable Products, Sr. Sub. Notes, 11.25%,
07/01/06(a) (Acquired 07/02/98; Cost $100,000) 100,000 100,500
- -------------------------------------------------------------------------------
197,000
- -------------------------------------------------------------------------------
MANUFACTURING (SPECIALIZED) - 7.02%
Brand Scaffold Services, Sr. Unsec. Notes, 10.25%,
02/15/08 150,000 143,250
- -------------------------------------------------------------------------------
Derby Cycle Corp., Sr. Notes, 10.00%, 05/15/08(a)
(Acquired 05/07/98; Cost $100,000) 100,000 86,500
- -------------------------------------------------------------------------------
Globe Manufacturing Corp., Sr. Sub. Notes, 10.00%,
08/01/08(a) (Acquired 07/28/98 - 10/27/98; Cost
$179,193) 200,000 182,000
- -------------------------------------------------------------------------------
Omega Cabinets, Sr. Sub. Notes, 10.50%, 06/15/07 150,000 147,750
- -------------------------------------------------------------------------------
559,500
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. HIGH YIELD FUND
112
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION) - 0.71%
Lodestar Holdings Inc., Sr. Unsec. Gtd. Notes, 11.50%,
05/15/05 $ 70,000 $ 56,350
- ------------------------------------------------------------------------------
PUBLISHING - 1.05%
Liberty Group Publishing, Inc., Sr. Unsec. Disc. Deb.,
11.625%, 02/01/09(d) 150,000 83,250
- ------------------------------------------------------------------------------
RAILROAD - 1.01%
TFM SA de CV. (Mexico), Sr. Gtd. Yankee Notes, 10.25%,
06/15/07 95,000 80,750
- ------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 1.97%
Plainwell, Inc., Series B Sr. Unsec. Sub. Notes, 11.00%,
03/01/08 200,000 157,000
- ------------------------------------------------------------------------------
RETAIL (SPECIALTY) - 5.00%
CEX Holdings, Inc., Series B Sr. Unsec. Gtd. Sub. Notes,
9.625%, 06/01/08 95,000 85,975
- ------------------------------------------------------------------------------
National Vision Associates, Sr. Notes, 12.75%,
10/15/05(a) (Acquired 10/05/98; Cost $148,296) 150,000 159,750
- ------------------------------------------------------------------------------
Rent-A-Center, Inc., Sr. Sub. Notes, 11.00%, 08/15/08(a)
(Acquired 08/13/98; Cost $150,000) 150,000 153,000
- ------------------------------------------------------------------------------
398,725
- ------------------------------------------------------------------------------
SERVICES (FACILITIES & ENVIRONMENTAL) - 0.12%
ATC Group Services, Inc., Sr. Unsec. Gtd. Sub. Notes,
12.00%, 01/15/08(e) 100,000 9,500
- ------------------------------------------------------------------------------
SHIPPING - 2.10%
Millenium Seacarriers, First Priority Ship Mortgage
Notes, 12.00%, 07/15/05(a)(f) (Acquired 07/20/98; Cost
$96,733) 100,000 80,500
- ------------------------------------------------------------------------------
Pegasus Shipping Hellas Co. (Bermuda), Sr. Sec. Gtd.
Mortgage Notes, 11.875%, 11/15/04 100,000 86,500
- ------------------------------------------------------------------------------
167,000
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 11.26%
Dobson Communications Corp., Sr. Notes, 11.75%, 04/15/07 200,000 203,500
- ------------------------------------------------------------------------------
Metrocall, Inc., Sr. Sub. Notes, 11.00%, 09/15/08(a)
(Acquired 12/17/98; Cost $337,634) 340,000 343,400
- ------------------------------------------------------------------------------
Nextel Communications, Inc., Sr. Notes, 12.00%,
11/01/08(a) (Acquired 10/28/98; Cost $221,801) 225,000 247,500
- ------------------------------------------------------------------------------
Spectrasite Holdings, Inc., Sr. Disc. Notes, 12.00%,
07/15/08(a)(d) (Acquired 06/23/98; Cost $117,927) 200,000 103,000
- ------------------------------------------------------------------------------
897,400
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 5.36%
Long Distance Direct, Inc., Sr. Notes, 12.25%,
04/15/08(a)(g) (Acquired 05/05/98 - 10/01/98; Cost
$131,064) 140,000 120,750
- ------------------------------------------------------------------------------
Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%,
05/15/08 100,000 102,000
- ------------------------------------------------------------------------------
Versatel Telecom B.V. (Netherlands), Sr. Notes, 13.25%,
05/15/08(a)(h) (Acquired 11/17/98;
Cost $192,036) 200,000 204,000
- ------------------------------------------------------------------------------
426,750
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
TELEPHONE - 2.48%
Dobson Communications Corp., Sr. Unsec. Notes, 12.25%,
06/15/08 $100,000 $ 92,750
- ------------------------------------------------------------------------------
US Xchange LLC, Sr. Unsec. Notes, 15.00%, 07/01/08 100,000 105,250
- ------------------------------------------------------------------------------
198,000
- ------------------------------------------------------------------------------
TRUCK & PARTS - 1.14%
HDA Part System, Inc., Sr. Sub. Notes, 12.00%,
08/01/05(a) (Acquired 07/28/98; Cost $100,000) 100,000 90,500
- ------------------------------------------------------------------------------
Total Corporate Bonds & Notes
(Cost $7,595,612) 7,278,705
- ------------------------------------------------------------------------------
<CAPTION>
SHARES
<S> <C> <C>
PREFERRED STOCK - 1.04%
BROADCASTING (TELEVISION, RADIO, & CABLE) - 1.04%
Benedek Communications, 11.50% PIK Pfd. (Cost $100,000) 102 83,130
- ------------------------------------------------------------------------------
WARRANTS - 0.10%
BROADCASTING (TELEVISION, RADIO & CABLE) - 0.08%
Park N View, Inc., expiring 05/15/08 (United Kingdom)(i) 100 6,200
- ------------------------------------------------------------------------------
COMPUTERS (NETWORKING) - 0.00%
Convergent Communications, expiring 04/01/08(i) 360 4
- ------------------------------------------------------------------------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES - 0.00%
Resort At Summerlin/RAS Co., expiring 12/15/07(i) 100 1
- ------------------------------------------------------------------------------
METAL FABRICATORS - 0.00%
Gulf States Steel, Inc., expiring 04/15/03(i) 60 1
- ------------------------------------------------------------------------------
SHIPPING - 0.01%
Millenium Seacarriers, expiring 07/15/03(i) 100 625
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 0.01%
Long Distance Direct, Inc., expiring 04/13/08(i) 140 350
- ------------------------------------------------------------------------------
Versatel Telecom B.V. (New Zealand), expiring
05/15/08(i) 100 1,012
- ------------------------------------------------------------------------------
1,362
- ------------------------------------------------------------------------------
Total Warrants (Cost $166) 8,193
- ------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENT - 4.47%(j)
SBC Warburg Dillion Read, Inc., 4.75%, 1/04/99(k) (Cost
$356,078) $356,078 356,078
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS - 96.98% 7,726,106
- ------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 3.02% 240,195
- ------------------------------------------------------------------------------
NET ASSETS - 100.00% $7,966,301
================================================================================
</TABLE>
AIM V.I. HIGH YIELD FUND
113
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Restricted security. May be resold to qualified institutional buyers in
accordance with the provisions of Rule 144A under the Securities Act of
1933, as amended. The valuation of these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities at 12/31/98 was $2,202,850 which
represented 27.65% of the Fund's net assets.
(b) Issued as a unit. This unit also includes 100 warrants to purchase 6.73833
shares of common stock per warrant.
(c) Issued as a unit. This unit also includes 360 warrants to purchase 10.8
shares of common stock per warrant.
(d) Step bond issued at a discount. Interest rate shown represents the coupon
rate at which the bond will accrue at a specified future date.
(e) Defaulted security. Currently, the issuer is partially in default with
respect to interest payments.
(f) Issued as a unit. This unit also includes 100 warrants to purchase 1.9
shares of common stock per warrant.
(g) Issued as a unit. This unit also includes 140 warrants to purchase 15.0874
shares of common stock per warrant.
(h) Issued as unit. This unit also includes 100 warrants to purchase 6.667
shares of common stock per warrant.
(i) Non-income producing security.
(j) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investments advisor or its affiliates.
(k) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
Abbreviations:
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
See Notes to Financial Statements.
AIM V.I. HIGH YIELD FUND
114
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $8,051,856) $ 7,726,106
- ----------------------------------------------------------------------
Cash 7,980
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 15,759
- ----------------------------------------------------------------------
Dividends and interest 194,385
- ----------------------------------------------------------------------
Reimbursement from advisor 28,175
- ----------------------------------------------------------------------
Investment for deferred compensation plan 2,781
- ----------------------------------------------------------------------
Other assets 3,402
- ----------------------------------------------------------------------
Total assets 7,978,588
- ----------------------------------------------------------------------
LIABILITIES:
Payables for Capital stock reacquired 57
- ----------------------------------------------------------------------
Deferred compensation plan 2,781
- ----------------------------------------------------------------------
Accrued administrative services fees 663
- ----------------------------------------------------------------------
Accrued operating expenses 8,786
- ----------------------------------------------------------------------
Total liabilities 12,287
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $ 7,966,301
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 901,675
======================================================================
Net asset value, offering and redemption price per share $8.84
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the period May 1, 1998 (date operations commenced)
through December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 360,052
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 20,728
- -------------------------------------------------------------------------------
Administrative services fees 27,339
- -------------------------------------------------------------------------------
Custodian fees 12,190
- -------------------------------------------------------------------------------
Directors' fees and expenses 6,309
- -------------------------------------------------------------------------------
Professional fees 10,645
- -------------------------------------------------------------------------------
Other 5,661
- -------------------------------------------------------------------------------
Total expenses 82,872
- -------------------------------------------------------------------------------
Less: Expenses paid indirectly (655)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by advisor (45,526)
- -------------------------------------------------------------------------------
Net expenses 36,691
- -------------------------------------------------------------------------------
Net investment income 323,361
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES:
Net realized gain (loss) from investment securities (367,230)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities (325,750)
- -------------------------------------------------------------------------------
Net gain (loss) from investment securities (692,980)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $(369,619)
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. HIGH YIELD FUND
115
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period May 1, 1998 (date operations commenced) through December 31,
1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $ 323,361
- -----------------------------------------------------------------------------
Net realized gain (loss) from investment securities (367,230)
- -----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment
securities (325,750)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations (369,619)
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment income (330,305)
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 8,666,225
- -----------------------------------------------------------------------------
Net increase in net assets 7,966,301
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of period -
- -----------------------------------------------------------------------------
End of period $7,966,301
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $8,662,066
- -----------------------------------------------------------------------------
Undistributed net investment income (loss) (2,785)
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities (367,230)
- -----------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investment
securities (325,750)
- -----------------------------------------------------------------------------
$7,966,301
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. High Yield Fund (the "Fund"). The Fund's investment objective
is to achieve a high level of current income by investing primarily in
publicly traded non-investment grade debt securities. The Fund will also
consider the possibility of capital growth when it purchases and sells
securities. Debt securities of less than investment grade are considered "high
risk" securities (commonly referred to as junk bonds). These bonds may involve
special risks in addition to the risks associated with investment in higher
rated debt securities. High yield bonds may be more susceptible to real or
perceived adverse economic and competitive industry conditions than higher
grade bonds. Also, the secondary market in which high yield bonds are traded
may be less liquid than the market for higher grade bonds. The Fund commenced
operations on May 1, 1998. Currently, shares of the Fund are sold only to
insurance company separate accounts to fund the benefits of variable annuity
contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could
differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the presentation of its financial
statements.
A. Security Valuations - Debt securities (including convertible bonds) are
valued on the basis of prices provided by an independent pricing service.
Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to special securities, yield, quality, coupon rate, maturity, type
of issue, individual trading characteristics and other market data.
Investment securities for which prices are not provided by the pricing
service and which are listed or traded on an exchange (except convertible
bonds) are valued at the last sales price on the exchange where principally
traded or, lacking any sales on a particular day, at the mean between the
closing bid and asked prices on that day unless the Board of Directors, or
persons designated by the Board of Directors, determines that over-the-
counter quotations more closely reflect the current market value of the
security. Securities traded in the over-the-counter market, except (i)
securities priced by the pricing service, (ii) securities for which
representative exchange prices are available, and (iii) securities reported
in the NASDAQ National Market System, are valued at the mean between
representative last bid and asked prices obtained from an electronic
quotation reporting system, if such prices are available, or from
established market makers. Each security reported in the NASDAQ National
Market System is valued at the last sales price on the valuation date or
absent a last sales price, at the mean between the closing bid and asked
prices. Securities for which market quotations either are not
AIM V.I. HIGH YIELD FUND
116
<PAGE>
readily available or are questionable are valued at fair value as determined
in good faith by or under the supervision of the Company's officers in a
manner specifically authorized by the Board of Directors. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market value.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1998
additional paid-in capital was decreased by $4,159 and undistributed net
investment income was increased by $4,159 in order to comply with the
requirements of the American Institute of Certified Public Accountants
Statement of Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements. The Fund had capital
loss carryforwards (which may be carried forward to offset future taxable
capital gains, if any) of $247,108, which expires, if not previously
utilized, through the year 2006. The Fund cannot distribute capital gains
to shareholders until the tax loss carryforwards have been utilized.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.625% of
the first $200 million of the Fund's average daily net assets, plus 0.55% of
the Fund's average daily net assets of the next $300 million, plus 0.50% of
the Fund's average daily net assets of the next $500 million, plus 0.45% of
the Fund's average daily net assets in excess of $1 billion. During the period
May 1, 1998 (date operations commenced) through December 31, 1998, AIM waived
fees and reimbursed expenses of $45,526.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the period May 1, 1998 (date
operations commenced) through December 31, 1998, AIM was reimbursed $27,339
for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the period May 1, 1998 (date operations commenced) through December
31, 1998, the Fund incurred legal fees of $1,697 for services rendered by
Kramer, Levin, Naftalis & Frankel as counsel to the Board of Directors. A
member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $655 under an expense offset
arrangement. The effect of the above arrangement resulted in a reduction of
the Fund's total expenses of $655 during the period May 1, 1998 (date
operations commenced) through December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest a director's fees,
if so elected by such director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the period May 1, 1998 (date operations
commenced) through December 31, 1998 was $9,741,226 and $1,711,250,
respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $ 152,901
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (478,651)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment securities $(325,750)
===============================================================================
</TABLE>
Investments have the same cost for tax and financial statements.
AIM V.I. HIGH YIELD FUND
117
<PAGE>
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the period May 1, 1998 (date
operations commenced) through December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------- ----------
<S> <C> <C>
Sold 910,186 $8,767,632
- ---------------------------------------------------------
Issued as reinvestment of dividends 37,577 330,305
- ---------------------------------------------------------
Reacquired (46,088) (431,712)
- ---------------------------------------------------------
901,675 $8,666,225
=========================================================
</TABLE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during the period May 1, 1998 (date operations commenced) through December 31,
1998.
<TABLE>
<CAPTION>
1998
------
<S> <C>
Net asset value, beginning of period $10.00
- ----------------------------------------------------------------- ------
Income from investment operations:
Net investment income 0.39
- ----------------------------------------------------------------- ------
Net gains (losses) on securities (both realized and unrealized) (1.15)
- ----------------------------------------------------------------- ------
Total from investment operations (0.76)
- ----------------------------------------------------------------- ------
Less dividends from net investment income (0.40)
- ----------------------------------------------------------------- ------
Net asset value, end of period $ 8.84
================================================================= ======
Total return(a) (7.61)%
================================================================= ======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000s omitted) $7,966
================================================================= ======
Ratio of expenses to average net assets(b) 1.13%(c)
================================================================= ======
Ratio of net investment income to average net assets(d) 9.75%(c)
================================================================= ======
Portfolio turnover rate 39%
================================================================= ======
</TABLE>
(a) Total return is not annualized.
(b) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.50% (annualized).
(c) Ratios are based on average net assets of $4,940,917.
(d) After fee waivers and/or expense reimbursements. Ratio of net
investment income to average net assets prior to fee waivers and/or
expense reimbursements was 8.36% (annualized).
AIM V.I. HIGH YIELD FUND
118
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. High Yield Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period May 1, 1998 (commencement
of operations) through December 31, 1998. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. High Yield Fund, as of December 31, 1998, the results of its operations,
the changes in its net assets, and the financial highlights for the period May
1, 1998 (commencement of operations) through December 31, 1998 in conformity
with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. HIGH YIELD FUND
119
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
EUROPE SHELTERS FUND
FROM GLOBAL STORMS
A roundtable discussion with the Fund management team for AIM V.I. International
Equity Fund for the fiscal year ended December 31, 1998.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. GLOBAL MARKET VOLATILITY DOMINATED --------------------------------- than in the United States, and investors
FINANCIAL NEWS IN 1998. HOW DID THE FUND could get that growth at a cheaper price.
PERFORM? Strong performance Europe's market environment has been
A. Despite the difficult environment, helped by the strict monetary and
including a major correction in world from European stocks provided budgetary policies required of countries
equity markets during August, the Fund joining the European Economic and Monetary
achieved excellent results. Strong the biggest boost to Union (EMU). Investors have benefited from
performance from European stocks provided a decrease in interest rates, lower
the biggest boost to the Fund's the Fund's performance inflation, and an increase in
performance. For the fiscal year ended privatization. Furthermore, the
December 31, 1998, total return was --------------------------------- introduction of a single currency (the
15.49%, besting the Lipper International euro), has prodded European companies
Fund Index, which posted a gain of 12.66%. riskiness of all emerging markets. Such toward more competitive practices, and the
The overall index for international negative sentiment led to massive outflows results are starting to appear on the
markets--the EAFE--achieved a total return of capital in Latin America. With the bottom line.
of 20.00% for the reporting period. additional stress of falling commodity
prices, Latin American markets ended 1998 Q. HOW HAVE YOU MANAGED THE PORTFOLIO IN
Q. WHY WAS MARKET TURMOIL SO PERVASIVE? with some of the world's worst performance THIS ENVIRONMENT?
A. The trouble began in Asia, where results. A. We've maintained our focus on earnings
devalued currencies plus billions in bad growth and on diversification. The
loans limited the region's ability to Q. IS THERE ANY INDICATION THAT THE ASIAN portfolio was invested in 142 holdings,
purchase goods and raw materials from the CRISIS IS ABATING? representing companies found in 25
world's sellers. In addition, cash- A. Toward the end of the reporting period, different countries.
strapped Asian companies flooded global Asian markets took an upturn. Interest By the end of the reporting period, we
commodities markets with their rates were falling and some currencies were still finding great opportunities in
inventories. The combination of oversupply were stabilizing. Reform efforts in South Europe, with France and the United Kingdom
and weakened demand caused prices to Korea and Thailand have been particularly bringing in some of the strongest results.
plummet, contributing to worldwide impressive. A favorite was French company Cap Gemini,
deflation. However, the first hints of stabiliza- one of Europe's biggest information-
Meanwhile, investors worried over news tion do not necessarily indicate certain systems companies.
of Russia's overwhelming government debt recovery. As 1998 came to a close, We had limited exposure to Japan, where
and the speculative borrowing practiced by economic conditions and corporate earnings many companies' earnings are not yet
its private banks. In August, Russia were still quite weak throughout the meeting our expectations. We've also
attempted to stabilize the banking system region. Inadequate bank reform efforts in drastically reduced our holdings in non-
by floating the ruble and suspending Japan continued to send warning signs to Japan Asia, focusing on the few companies
repayment of much of its foreign debt. investors. that have produced consistent earnings
These events spurred a global flight to growth despite the difficult operating
quality, resulting in a broad-based sell- Q. WHY HAVE EUROPE'S MARKETS STAYED STRONG? environment. As of the end of December, we
off. A. Europe did suffer during the summer's had no holdings in Malaysia, where capital
global downturn, but the markets almost controls have been in effect since the
Q. HOW DID LATIN AMERICAN MARKETS FARE? completely recovered during the fourth fall of 1998.
A. After watching currency devaluations quarter. For most of 1998, corporate In Latin America, our emphasis was on
and debt defaults in Asia and Russia, earnings growth in Europe was stronger defensive names with limited dollar debt,
investors began to re-evaluate the solid cash flows, and reliable management.
120 AIM V.I. INTERNATIONAL EQUITY FUND
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
GROWTH OF A $10,000 INVESTMENT AVERAGE ANNUAL TOTAL RETURN PORTFOLIO COMPOSITION
From 5/2/93--12/31/98 As of 12/31/98 As of 12/31/98, based on total net assets
AIM V.I. Lipper Inception (5/2/93) 13.36% TOP 10 EQUITY HOLDINGS
International International
Equity Fund EAFE Fund Index 1 Year 15.49 1. Pinault-Printemps-Redoute
(In thousands) S.A. (France) 1.42%
5/2/93 10,000 10,000 10,000 2. Verenigde Nederlandse
6/93 9,880 10,057 10,030 Uitgeversbedrijven
12/93 11,890 10,831 12,188 Verenigd Bezit
6/94 11,620 11,797 12,163 (Netherlands) 1.41
12/94 11,698 11,704 12,098 3. Cap Gemini Sogeti S.A.
6/95 12,670 12,027 12,398 (France) 1.39
12/95 13,714 13,056 13,311 4. Karstadt A.G. (Germany) 1.35
6/96 15,501 13,665 14,465 5. Nokia Oyj A.B.-Class A
12/96 16,464 13,886 15,231 (Finland) 1.33
6/97 18,387 15,464 17,355 6. Allied Irish Banks PLC
12/97 17,606 14,172 16,335 (United Kingdom) 1.31
6/98 20,916 16,451 18,198 7. Vodafone Group PLC
12/98 20,333 17,053 18,403 (United Kingdom) 1.25
Past performance cannot guarantee comparable future results. 8. Banque Nationale de Paris
(France) 1.23
Market volatility can significantly affect short-term performance. Results 9. Rentokil Initial PLC
of an investment made today may differ substantially from the historical (United Kingdom) 1.17
performance shown. 10. Kingfisher PLC (United
Kingdom) 1.17
The performance figures shown represent the AIM V.I. International Equity
Fund. They are not intended to reflect actual annuity values, and they do TOP 10 INDUSTRIES
not reflect charges at the separate account level which, if applied, would
lower the performance results. The Fund's performance figures are 1. Banks (Major Regional) 10.31%
historical and reflect reinvestment of all distributions and changes in the 2. Telephone 6.92
net asset value. The Fund's investment return and principal value will 3. Retail (Food Chains) 5.17
fluctuate so that Fund shares, when redeemed, may be worth more or less 4. Services (Commercial &
than their original cost. Source: Towers Data Systems Hypo--Registered Trademark--. Consumer) 5.39
The EAFE--Registered Trademark-- (Europe, Australasia, and the Far East) 5. Manufacturing (Diversified) 4.66
Index is a group of unmanaged foreign securities tracked by Morgan Stanley 6. Foods 4.40
Capital International. The unmanaged Lipper International Fund Index 7. Computers (Software &
represents an average of the performance of the 30 largest international Services) 3.72
mutual funds. Lipper Inc. is an independent mutual funds performance 8. Insurance (Multi-line) 3.57
monitor. Data for the indexes are for the period 4/30/93-12/31/98. 9. Telecommunications
An investment cannot be made in any index listed. Index results include (Cellular/Wireless) 3.43
reinvested dividends. 10. Electric Companies 2.99
International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to TOP 10 COUNTRIES
fluctuations in the value of the U.S. dollar relative to the values of
other currencies, the custody arrangements made for the Fund's foreign 1. United Kingdom 18.00%
holdings, differences in accounting, political risks, and the lesser degree 2. France 16.11
of public information required to be provided by non-U.S. companies. 3. Japan 7.68
4. Netherlands 6.94
Q. WHAT IS YOUR OUTLOOK FOR THE NEAR TERM? and investor confidence--may begin to 5. Italy 6.24
A. Following the introduction of the euro return some time late in the year. When 6. Canada 5.55
in January, Europe may experience a and if that happens, of course, depends on 7. Germany 5.13
certain degree of uncertainty during the external demand and on the strength of 8. Switzerland 4.35
first quarter of 1999. There is some U.S., European and Japanese economies. 9. Belgium 3.25
question about how strong the euro should Japan may be the next great market 10. Spain 2.96
be relative to the U.S. dollar, and there recovery story, but we are still in a wait-
may be some volatility in currency markets and-see mode. Please keep in mind that the Fund's
as a result. But we expect most of the Latin America may remain quite volatile. portfolio composition is subject to change
wrinkles to be ironed out fairly quickly. We will continue to take a defensive and there is no assurance the Fund will
Many analysts think Asia will finally position until the economic environment continue to hold any particular security.
hit bottom in 1999, indicating that growth-- improves significantly.
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
121
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 91.58%
ARGENTINA - 1.11%
Telefonica de Argentina S.A.-ADR (Telephone) 29,300 $ 818,569
- -----------------------------------------------------------------------------
YPF Sociedad Anonima-ADR (Oil-International
Integrated) 65,900 1,841,081
- -----------------------------------------------------------------------------
2,659,650
- -----------------------------------------------------------------------------
AUSTRALIA - 0.87%
AMP Ltd. (Insurance-Life/Health)(a) 120,800 1,529,244
- -----------------------------------------------------------------------------
Cable & Wireless Optus, Ltd. (Telephone)(a) 268,000 562,851
- -----------------------------------------------------------------------------
2,092,095
- -----------------------------------------------------------------------------
BELGIUM - 3.25%
Barco N.V. (Manufacturing-Diversified) 4,000 1,123,010
- -----------------------------------------------------------------------------
Colruyt N.V. (Retail-Food Chains) 2,600 2,167,294
- -----------------------------------------------------------------------------
Delhaize-Le Lion, S.A. (Retail-Food & Drug)(a) 29,000 2,551,664
- -----------------------------------------------------------------------------
UCB S.A. (Manufacturing-Diversified) 320 1,963,531
- -----------------------------------------------------------------------------
7,805,499
- -----------------------------------------------------------------------------
BRAZIL - 0.95%
Companhia Brasileira de Distribuicao Grupo Pao de
Acucar-Pfd. (Retail-Food Chain) 57,700 894,350
- -----------------------------------------------------------------------------
Embratel Participacoes S.A. ADR (Telephone)(a) 14,100 196,519
- -----------------------------------------------------------------------------
Petroleo Brasileiro S.A.-Petrobras-Pfd. (Oil & Gas-
Exploration & Production) 3,013 341,719
- -----------------------------------------------------------------------------
Tele Celular Sul Participacoes S.A.
(Telecommunications-Cellular/Wireless)(a) 1,410 24,587
- -----------------------------------------------------------------------------
Tele Centro Oeste Celular Participacoes S.A.
(Telecommunication-Cellular/Wireless)(a) 1 3
- -----------------------------------------------------------------------------
Tele Centro Sul Participacoes S.A. (Telephone)(a) 2,820 117,911
- -----------------------------------------------------------------------------
Tele Sudeste Celular Participacoes S.A.
(Telecommunications-Cellular/Wireless) 2,820 58,339
- -----------------------------------------------------------------------------
Telecomunicacoes Brasileiras S.A.-ADR (Telephone) 14,100 1,542
- -----------------------------------------------------------------------------
Telesp Celular Participacoes S.A.
(Telecommunications-Cellular/Wireless)(a) 5,640 98,700
- -----------------------------------------------------------------------------
Telesp Celular S.A. (Telecommunications-
Cellular/Wireless)(a) 5,500 241,763
- -----------------------------------------------------------------------------
Telesp Participacoes S.A.-ADR (Telephone) 14,100 311,963
- -----------------------------------------------------------------------------
2,287,396
- -----------------------------------------------------------------------------
CANADA - 5.55%
ATI Technologies, Inc. (Computers-Hardware)(a) 43,100 491,565
- -----------------------------------------------------------------------------
Bank of Montreal (Banks-Major Regional) 35,000 1,411,438
- -----------------------------------------------------------------------------
BCE Inc. (Telephone) 32,300 1,221,278
- -----------------------------------------------------------------------------
Bombardier Inc. (Aerospace/Defense) 137,600 1,978,562
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
CANADA - (CONTINUED)
Canadian National Railway Co. (Railroads) 9,000 $ 466,874
- -------------------------------------------------------------------------------
Imasco Ltd. (Manufacturing-Diversified) 95,600 2,043,216
- -------------------------------------------------------------------------------
Northern Telecom Ltd.-ADR (Communications Equipment) 10,917 547,215
- -------------------------------------------------------------------------------
Royal Bank of Canada (Banks-Major Regional) 32,500 1,626,062
- -------------------------------------------------------------------------------
Suncor Energy, Inc. (Oil-International Integrated) 38,000 1,142,483
- -------------------------------------------------------------------------------
Teleglobe, Inc. (Telecommunications) 39,500 1,419,935
- -------------------------------------------------------------------------------
Toronto-Dominion Bank (Banks-Regional) 28,100 988,092
- -------------------------------------------------------------------------------
13,336,720
- -------------------------------------------------------------------------------
CROATIA - 0.25%
Pliva DD - GDR (Health Care - Drugs-Major
Pharmaceutical) (Acquired 05/13/98-05/20/98; Cost
$604,917)(b) 36,000 597,600
- -------------------------------------------------------------------------------
FINLAND - 1.81%
Nokia Oyj A.B.-Class A (Communications Equipment) 26,200 3,187,285
- -------------------------------------------------------------------------------
Sonera Group Oyj (Telecommunications-
Cellular/Wireless) (Acquired 11/10/98;
Cost $700,547)(a)(b) 65,250 1,152,262
- -------------------------------------------------------------------------------
4,339,547
- -------------------------------------------------------------------------------
FRANCE - 16.11%
Accor S.A. (Lodging-Hotels) 5,500 1,190,625
- -------------------------------------------------------------------------------
Altran Technologies, S.A. (Services-Commercial &
Consumer) 3,900 940,549
- -------------------------------------------------------------------------------
AXA S.A. (Insurance-Multi-Line) 13,000 1,883,889
- -------------------------------------------------------------------------------
Banque Nationale de Paris (Banks-Major Regional) 36,000 2,963,986
- -------------------------------------------------------------------------------
Cap Gemini Sogeti S.A. (Computer-Software & Services) 20,800 3,337,973
- -------------------------------------------------------------------------------
Danone (Foods) 8,000 2,290,008
- -------------------------------------------------------------------------------
Elf Aquitaine S.A. (Oil & Gas-Refining & Marketing) 19,500 2,253,690
- -------------------------------------------------------------------------------
Essilor International S.A. (Manufacturing-
Specialized) 2,275 895,429
- -------------------------------------------------------------------------------
Etablissements Economiques du Casino Guichard-
Perrachon (Retail-Food Chains)(a) 20,400 2,124,126
- -------------------------------------------------------------------------------
Legrand S.A. (Housewares) 6,900 1,828,232
- -------------------------------------------------------------------------------
Pinault-Printemps-Redoute S.A. (Retail-General
Merchandise) 17,800 3,401,091
- -------------------------------------------------------------------------------
Promodes (Retail-Food Chains) 3,650 2,653,833
- -------------------------------------------------------------------------------
PSA Peugeot Citreon (Automobiles) 7,000 1,083,281
- -------------------------------------------------------------------------------
Renault S.A. (Automobiles) 49,000 2,200,376
- -------------------------------------------------------------------------------
Rexal S.A. (Distributors-Food & Health) 13,600 1,291,994
- -------------------------------------------------------------------------------
Rhone-Poulenc-Class A (Chemicals-Diversified) 25,100 1,291,486
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
122
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
FRANCE - (CONTINUED)
Societe Generale (Banks-Major Regional) 8,550 $ 1,384,337
- -------------------------------------------------------------------------------
Societe Television Francaise 1 (Broadcasting-
Television, Radio & Cable) 6,600 1,174,881
- -------------------------------------------------------------------------------
Suez Lyonnaise des Eaux (Manufacturing-Diversified) 11,600 2,382,467
- -------------------------------------------------------------------------------
Total S.A.-Class B (Oil & Gas-Refining & Marketing) 9,500 961,982
- -------------------------------------------------------------------------------
Valeo S.A. (Auto Parts & Equipment) 15,000 1,181,859
- -------------------------------------------------------------------------------
38,716,094
- -------------------------------------------------------------------------------
GERMANY - 5.13%
Allianz A.G. (Insurance-Multi-Line) 7,600 2,786,606
- -------------------------------------------------------------------------------
Bayerische Vereinsbank A.G. (Banks-Major Regional) 27,000 2,114,438
- -------------------------------------------------------------------------------
BHF-Bank A.G. (Banks-Major Regional) 15,000 603,097
- -------------------------------------------------------------------------------
DaimlerChrysler A.G. (Automobiles) 12,964 1,279,751
- -------------------------------------------------------------------------------
Dresdner Bank A.G. (Banks-Major Regional) 38,500 1,617,259
- -------------------------------------------------------------------------------
Karstadt A.G. (Retail-Department Stores) 6,200 3,236,918
- -------------------------------------------------------------------------------
Porsche A.G.-Pfd. (Automobiles) 300 684,109
- -------------------------------------------------------------------------------
12,322,178
- -------------------------------------------------------------------------------
HONG KONG - 1.73%
China Telecom Ltd. (Telecommunications-
Cellular/Wireless)(a) 582,000 1,006,673
- -------------------------------------------------------------------------------
Cosco Pacific Ltd. (Financial-Diversified) 2,444,000 1,017,400
- -------------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Retail-Food Chains) 242,000 1,710,253
- -------------------------------------------------------------------------------
Ng Fung Hong Ltd. (Foods) 460,000 412,671
- -------------------------------------------------------------------------------
4,146,997
- -------------------------------------------------------------------------------
INDONESIA - 0.34%
Gulf Indonesia Resources Ltd. (Oil-International
Integrated)(a) 127,400 828,100
- -------------------------------------------------------------------------------
IRELAND - 1.95%
Allied Irish Banks PLC (Banks-Regional) 176,500 3,144,447
- -------------------------------------------------------------------------------
Bank of Ireland (Banks-Major Regional) 70,500 1,543,049
- -------------------------------------------------------------------------------
4,687,496
- -------------------------------------------------------------------------------
ITALY - 6.24%
Assicurazioni Generali (Insurance-Multi-Line) 49,100 2,049,918
- -------------------------------------------------------------------------------
Banca Commerciale Italiana (Banks-Major Regional) 109,300 753,930
- -------------------------------------------------------------------------------
Banca di Roma (Banks-Major Regional)(a) 972,000 1,646,760
- -------------------------------------------------------------------------------
Credito Italiano S.p.A. (Banks-Major Regional) 333,400 1,975,950
- -------------------------------------------------------------------------------
Ente Nazionale Idrocarburi S.p.A. (Oil & Gas-Refining
& Marketing) 189,000 1,235,070
- -------------------------------------------------------------------------------
Olivetti S.p.A. (Telecommunications-
Cellular/Wireless)(a) 378,000 1,315,121
- -------------------------------------------------------------------------------
San Paolo-IMI S.p.A. (Banks-Major Regional) 122,160 2,158,330
- -------------------------------------------------------------------------------
Telecom Italia Mobile S.p.A. (Telecommunications-
Cellular/Wireless) 271,000 2,000,484
- -------------------------------------------------------------------------------
Telecom Italia S.p.A. (Telephone) 217,500 1,855,600
- -------------------------------------------------------------------------------
14,991,163
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
JAPAN - 7.68%
Advantest Corp. (Electronics-Instrumentation)(a) 34,700 $ 2,199,079
- -------------------------------------------------------------------------------
Alps Electric Co., Ltd. (Electronics-Component
Distributors)(a) 47,000 863,206
- -------------------------------------------------------------------------------
Hoya Corp.(Manufacturing-Specialized)(a) 17,000 827,580
- -------------------------------------------------------------------------------
Matsushita Communication Industrial Co., Ltd.
(Telephone)(a) 16,000 754,824
- -------------------------------------------------------------------------------
Murata Manufacturing Co., Ltd. (Electronics-Component
Distributors) 20,000 830,235
- -------------------------------------------------------------------------------
Nippon Telegraph & Telephone Corp. (Telephone) 1,500 1,157,727
- -------------------------------------------------------------------------------
Nippon Television Network Corp. (Broadcasting-
Television, Radio & Cable) 2,690 792,857
- -------------------------------------------------------------------------------
NTT Data Corp. (Computers-Software & Services)(a) 365 1,812,400
- -------------------------------------------------------------------------------
Okuma Corp. (Machine Tools)(a) 205,000 1,066,915
- -------------------------------------------------------------------------------
Omron Corp. (Electronics-Component Distributors)(a) 57,000 780,988
- -------------------------------------------------------------------------------
SMC Corp. (Machinery-Diversified) 5,900 471,039
- -------------------------------------------------------------------------------
Sony Corp. (Electronics-Component Distributors) 16,800 1,223,792
- -------------------------------------------------------------------------------
Takeda Chemical Industries (Health Care - Drugs-
Generic & Other) 53,000 2,040,627
- -------------------------------------------------------------------------------
TDK Corp. (Electrical Equipment) 17,000 1,554,346
- -------------------------------------------------------------------------------
Tokyo Electron Ltd. (Electronics-Semiconductors)(a) 55,000 2,088,423
- -------------------------------------------------------------------------------
18,464,038
- -------------------------------------------------------------------------------
MEXICO - 2.11%
Coca-Cola Femsa S.A.-ADR (Beverages-Non-Alcoholic) 39,800 527,350
- -------------------------------------------------------------------------------
Formento Economico Mexicano, S.A. de C.V.-Class B
(Beverages-Alcoholic) 70,720 1,882,920
- -------------------------------------------------------------------------------
Grupo Financiero Banamex Accival, S.A. de C.V.
(Financial-Diversified)(a) 767,000 1,005,622
- -------------------------------------------------------------------------------
Grupo Modelo S.A. de C.V.-Series C (Beverages-
Alcoholic) 387,000 818,955
- -------------------------------------------------------------------------------
Grupo Televisa S.A.-GDR (Entertainment)(a) 33,700 831,969
- -------------------------------------------------------------------------------
5,066,816
- -------------------------------------------------------------------------------
NETHERLANDS - 6.94%
Getronics N.V. (Computers-Software & Services) 42,500 2,104,408
- -------------------------------------------------------------------------------
Heineken N.V. (Beverages-Alcoholic) 46,800 2,815,675
- -------------------------------------------------------------------------------
IHC Caland N.V. (Manufacturing-Specialized) 11,100 460,973
- -------------------------------------------------------------------------------
Koninklijke Ahold N.V. (Retail-Food Chains) 51,800 1,914,024
- -------------------------------------------------------------------------------
Koninklijke Numico N.V. (Foods) 26,000 1,238,952
- -------------------------------------------------------------------------------
Laurus N.V. (Retail-General Merchandise) 23,380 590,039
- -------------------------------------------------------------------------------
Randstad Holdings N.V. (Services-Commercial &
Consumer) 13,000 699,074
- -------------------------------------------------------------------------------
Vendex N.V. (Retail-General Merchandise) 33,400 810,904
- -------------------------------------------------------------------------------
Verenigde Nederlandse Uitgeversbedrijven Verenigd
Bezit (Publishing) 90,100 3,396,380
- -------------------------------------------------------------------------------
Wolters Kluwer N.V. (Specialty Printing)(a) 12,350 2,642,014
- -------------------------------------------------------------------------------
16,672,443
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
123
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
NORWAY - 0.18%
Merkantildata A.S.A (Services-Commercial & Consumer) 44,000 $ 434,371
- ------------------------------------------------------------------------------
PHILIPPINES - 0.30%
Philippine Long Distance Telephone Co.-ADR
(Telephone) 11,600 300,875
- ------------------------------------------------------------------------------
Philippine Long Distance Telephone Co. (Telephone) 16,660 429,935
- ------------------------------------------------------------------------------
730,810
- ------------------------------------------------------------------------------
PORTUGAL - 2.44%
Banco Comercial Portugues, S.A. (Banks-Major
Regional) 66,200 2,037,072
- ------------------------------------------------------------------------------
Electricidade de Portugal, S.A.-ADR (Electric
Companies) 13,800 614,962
- ------------------------------------------------------------------------------
Electricidade de Portugal, S.A. (Electric Companies) 25,000 550,915
- ------------------------------------------------------------------------------
Portugal Telecom S.A. (Telephone) 35,900 1,647,469
- ------------------------------------------------------------------------------
Telecel-Comunicacaoes Pessoais, S.A.
(Telecommunications-Cellular/Wireless) 5,000 1,022,980
- ------------------------------------------------------------------------------
5,873,398
- ------------------------------------------------------------------------------
SINGAPORE - 0.24%
Keppel Corp. Ltd. (Engineering & Construction)(a) 217,000 581,472
- ------------------------------------------------------------------------------
SPAIN - 2.96%
Corp. Financiera Reunida, S.A. (Investment
Management)(a) 49,400 742,372
- ------------------------------------------------------------------------------
Endesa S.A. (Electric Companies) 49,200 1,302,119
- ------------------------------------------------------------------------------
Iberdrola S.A. (Electric Companies) 148,000 2,765,820
- ------------------------------------------------------------------------------
Telefonica de Espana (Telephone) 50,900 2,260,710
- ------------------------------------------------------------------------------
Telefonica de Espana-Rights, expiring 01/30/99
(Telephone) 50,900 45,143
- ------------------------------------------------------------------------------
7,116,164
- ------------------------------------------------------------------------------
SWEDEN - 1.09%
Hennes & Mauritz A.B.-Class B (Retail-Specialty-
Apparel) 21,494 1,752,343
- ------------------------------------------------------------------------------
WM-Data A.B. (Computers-Software & Services) 20,500 873,523
- ------------------------------------------------------------------------------
2,625,866
- ------------------------------------------------------------------------------
SWITZERLAND - 4.35%
Adecco S.A. (Services-Commercial & Consumer)(a) 2,600 1,187,154
- ------------------------------------------------------------------------------
Julius Baer Holding A.G. (Banks-Major Regional)(a) 230 764,601
- ------------------------------------------------------------------------------
Nestle S.A. (Foods) 800 1,741,917
- ------------------------------------------------------------------------------
Novartis A.G. (Health Care-Diversified) 1,380 2,713,370
- ------------------------------------------------------------------------------
UBS A.G. (Banks-Major Regional) 7,107 2,184,062
- ------------------------------------------------------------------------------
Zurich Allied A.G. (Insurance-Multi-Line)(a) 2,500 1,851,515
- ------------------------------------------------------------------------------
10,442,619
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - 18.00%
Airtours PLC (Services-Commercial & Consumer) 135,450 $ 859,898
- -------------------------------------------------------------------------------
Bodycote International PLC (Chemicals-Specialty) 40,500 553,600
- -------------------------------------------------------------------------------
British Aerospace PLC (Aerospace/Defense) 226,200 1,915,321
- -------------------------------------------------------------------------------
British Energy PLC (Electric Companies-Utilities) 219,000 2,502,198
- -------------------------------------------------------------------------------
British Petroleum Co. PLC (Oil & Gas-Refining &
Marketing) 113,800 1,697,390
- -------------------------------------------------------------------------------
Cable & Wireless PLC (Telecommunications-
Cellular/Wireless) 107,810 1,324,062
- -------------------------------------------------------------------------------
Compass Group PLC (Services-Commercial & Consumer) 156,000 1,784,980
- -------------------------------------------------------------------------------
EMAP PLC (Publishing) 93,100 1,779,313
- -------------------------------------------------------------------------------
General Electric Co. PLC (Manufacturing-Diversified) 262,600 2,367,551
- -------------------------------------------------------------------------------
GKN PLC (Manufacturing-Diversified) 100,000 1,325,365
- -------------------------------------------------------------------------------
Hays PLC (Services-Commercial & Consumer) 278,800 2,444,106
- -------------------------------------------------------------------------------
Kingfisher PLC (Retail-Department Stores) 261,000 2,821,582
- -------------------------------------------------------------------------------
Ladbroke Group PLC (Leisure Time-Products) 234,000 939,156
- -------------------------------------------------------------------------------
Logica PLC (Computer Software/Services) 92,500 803,986
- -------------------------------------------------------------------------------
Misys PLC (Services-Commercial & Consumer) 127,500 927,558
- -------------------------------------------------------------------------------
Orange PLC (Telecommunications)(a) 172,000 1,996,640
- -------------------------------------------------------------------------------
Pearson PLC (Specialty Printing) 106,300 2,107,553
- -------------------------------------------------------------------------------
Provident Financial PLC (Consumer Finance) 89,543 1,316,982
- -------------------------------------------------------------------------------
Railtrack Group PLC (Shipping) 78,644 2,053,272
- -------------------------------------------------------------------------------
Rentokil Initial PLC (Services-Commercial & Consumer) 375,000 2,823,152
- -------------------------------------------------------------------------------
Seton Scholl Healthcare PLC (Healthcare-Medical
Products & Supplies)(a) 42,000 586,318
- -------------------------------------------------------------------------------
Somerfield PLC (Retail-Food Chains) 145,000 968,720
- -------------------------------------------------------------------------------
Stagecoach Holdings PLC (Shipping) 145,000 576,534
- -------------------------------------------------------------------------------
Unilever PLC (Foods) 208,000 2,329,850
- -------------------------------------------------------------------------------
Vodafone Group PLC (Telecommunications-
Cellular/Wireless) 185,000 3,000,726
- -------------------------------------------------------------------------------
WPP Group PLC (Services-Advertising/ Marketing) 240,000 1,458,816
- -------------------------------------------------------------------------------
43,264,629
- -------------------------------------------------------------------------------
TOTAL FOREIGN STOCKS & OTHER EQUITY INTERESTS (Cost
$163,998,293) 220,083,161
- -------------------------------------------------------------------------------
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
124
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
FOREIGN CONVERTIBLE BONDS - 0.43%
HONG KONG - 0.08%
Cosco Treasury Co. Ltd. (Financial -Diversified),
Conv. Gtd. Bonds, 1.00%, 03/13/03 $ 246,000 $ 178,965
- -------------------------------------------------------------------------------
UNITED KINGDOM - 0.35%
Airtours PLC (Services -
Commercial & Consumer)(c),
Conv. Sub. Notes, 5.75%, 01/05/04 GBP 498,000 850,386
- -------------------------------------------------------------------------------
TOTAL FOREIGN CONVERTIBLE BONDS (Cost $995,959) 1,029,351
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 7.46%(d)
Goldman, Sachs & Co., 4.40%, 01/04/99 (Cost
$17,938,040)(e) 17,938,040 17,938,040
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.47% 239,050,552
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.53% 1,263,760
- -------------------------------------------------------------------------------
NET ASSETS - 100.00% $240,314,312
===============================================================================
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Non-income producing security.
(b) Restricted securities. May be resold to qualified institutional buyers in
accordance with provisions of Rule 144A under the Securities Act of 1933,
as amended. The valuation of the these securities has been determined in
accordance with procedures established by the Board of Directors. The
aggregate market value of these securities was $1,749,862 which at 12/31/98
represented 0.73% of the Fund's net assets.
(c) Foreign denominated security. Par value and coupon are denominated in
currency of country indicated.
(d) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts, and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(e) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
Abbreviations:
ADR - American Depositary Receipt
Conv.- Convertible
Deb. - Debentures
GBP - British Pound Sterling
GDR. - Global Depositary Receipt
Gtd. - Guaranteed
Pfd. - Preferred
Sub. - Subordinated
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
125
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, at market value (cost $182,932,292) $239,050,552
- ----------------------------------------------------------------------
Foreign currencies, at value (cost $963,811) 982,733
- ----------------------------------------------------------------------
Receivables for:
Capital stock sold 50,764
- ----------------------------------------------------------------------
Investments sold 119,244
- ----------------------------------------------------------------------
Dividends and interest 450,298
- ----------------------------------------------------------------------
Investment for deferred compensation plan 23,005
- ----------------------------------------------------------------------
Other assets 687
- ----------------------------------------------------------------------
Total assets 240,677,283
- ----------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 136,066
- ----------------------------------------------------------------------
Deferred compensation plan 23,005
- ----------------------------------------------------------------------
Accrued advisory fees 148,393
- ----------------------------------------------------------------------
Accrued directors' fees 397
- ----------------------------------------------------------------------
Accrued operating expenses 55,110
- ----------------------------------------------------------------------
Total liabilities 362,971
- ----------------------------------------------------------------------
Net assets applicable to shares outstanding $240,314,312
======================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ----------------------------------------------------------------------
Outstanding 12,249,573
======================================================================
Net asset value, offering and redemption price per share $19.62
======================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $426,044 foreign withholding tax) $ 3,026,033
- -------------------------------------------------------------------------
Interest 937,102
- -------------------------------------------------------------------------
Total investment income 3,963,135
- -------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,744,127
- -------------------------------------------------------------------------
Administrative services fees 68,587
- -------------------------------------------------------------------------
Custodian fees 220,051
- -------------------------------------------------------------------------
Directors' fees and expenses 8,867
- -------------------------------------------------------------------------
Other 70,591
- -------------------------------------------------------------------------
Total expenses 2,112,223
- -------------------------------------------------------------------------
Less: Expenses paid indirectly (1,417)
- -------------------------------------------------------------------------
Net expenses 2,110,806
- -------------------------------------------------------------------------
Net investment income 1,852,329
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 12,331,648
- -------------------------------------------------------------------------
Foreign currencies 929,906
- -------------------------------------------------------------------------
13,261,554
- -------------------------------------------------------------------------
Net unrealized appreciation of:
Investment securities 15,897,320
- -------------------------------------------------------------------------
Foreign currencies 72,349
- -------------------------------------------------------------------------
15,969,669
- -------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 29,231,223
- -------------------------------------------------------------------------
Net increase in net assets resulting from operations $31,083,552
=========================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. INTERNATIONAL EQUITY FUND
126
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,852,329 $ 1,372,766
- -----------------------------------------------------------------------------
Net realized gain (loss) from investment
securities and foreign currencies 13,261,554 (743,433)
- -----------------------------------------------------------------------------
Net unrealized appreciation of investment
securities and foreign currencies 15,969,669 11,878,346
- -----------------------------------------------------------------------------
Net increase in net assets resulting from
operations 31,083,552 12,507,679
- -----------------------------------------------------------------------------
Dividends to shareholders from net investment
income (1,910,166) (955,397)
- -----------------------------------------------------------------------------
Distributions to shareholders from net realized
gains -- (3,362,028)
- -----------------------------------------------------------------------------
Net increase from capital stock transactions 118,341 37,094,253
- -----------------------------------------------------------------------------
Net increase in net assets 29,291,727 45,284,507
- -----------------------------------------------------------------------------
NET ASSETS:
Beginning of year 211,022,585 165,738,078
- -----------------------------------------------------------------------------
End of year $240,314,312 $211,022,585
=============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $170,399,034 $170,283,064
- -----------------------------------------------------------------------------
Undistributed net investment income 1,934,360 1,134,854
- -----------------------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies 11,825,802 (580,780)
- -----------------------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 56,155,116 40,185,447
- -----------------------------------------------------------------------------
$240,314,312 $211,022,585
=============================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to AIM V.I. International Equity Fund (the "Fund"). The Fund's investment
objective is to seek to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities the issuers of which
are considered by AIM to have strong earnings momentum. Currently, shares of
the Fund are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date or absent a last sales price, at the mean of the closing bid and asked
prices. Debt obligations (including convertible bonds) are valued on the
basis of prices provided by an independent pricing service. Prices provided
by the pricing service may be determined without exclusive reliance on
quoted prices, and may reflect appropriate factors such as yield, type of
issue, coupon rate and maturity date. Securities for which market prices
are not provided by any of the above methods are valued at the mean between
last bid and asked prices based upon quotes furnished by independent
sources. Securities for which market quotations either are not readily
available or are questionable are valued at fair value as determined in
good faith by or under the
AIM V.I. INTERNATIONAL EQUITY FUND
127
<PAGE>
supervision of the Company's officers in a manner specifically authorized by
the Board of Directors. Short-term obligations having 60 days or less to
maturity are valued at amortized cost which approximates market value.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
also generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
value of such securities occur during such period, then these securities will
be valued at their fair value as determined in good faith by or under the
supervision of the Board of Directors.
B. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for that portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
C. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the amount of a purchase or sale of a security denominated in
a foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
D. Securities Transactions, Investment Income and Distributions - Securities
transactions are accounted for on a trade date basis. Realized gains or
losses are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on an accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
E. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. On December 31, 1998,
undistributed income was increased by $857,343, undistributed net realized
gains decreased by $854,972 and paid-in-capital decreased by $2,371 in
order to comply with the requirements of the American Institute of
Certified Public Accountants Statement of Position 93-2. Net assets of the
Fund were unaffected by the reclassifications discussed above.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.75% of
the first $250 million of the Fund's average daily net assets, plus 0.70% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $68,587 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$2,525 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $1,417 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $1,417 during the year ended
December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who is
not an "interested person" of AIM. The Company may invest directors' fees, if
so elected by a director, in mutual fund shares in accordance with a deferred
compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold by the Fund during the year ended December 31,
1998 was $162,175,992 and $169,568,442, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, on a tax basis, as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $60,248,789
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,508,109)
- --------------------------------------------------------------------------
Net unrealized appreciation of investment securities $54,740,680
==========================================================================
</TABLE>
Cost of investments for tax purposes is $184,309,872.
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Sold 2,410,075 $46,643,002 2,963,552 $ 50,938,182
- -----------------------------------------------------------------------------
Issued as reinvestment of
distributions 101,067 1,910,166 257,449 4,317,425
- -----------------------------------------------------------------------------
Reacquired (2,581,125) (48,434,827) (1,031,143) (18,161,354)
- -----------------------------------------------------------------------------
(69,983) $ 118,341 2,189,858 $ 37,094,253
=============================================================================
</TABLE>
AIM V.I. INTERNATIONAL EQUITY FUND
128
<PAGE>
NOTE 7 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, the
eleven months ended December 31, 1995, the year ended January 31, 1995 and the
period May 5, 1993 (date operations commenced) through January 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
---------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49 $ 10.00
- --------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.15 0.10 0.07 0.07 0.06 --
- --------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and
unrealized) 2.50 1.03 2.67 2.58 (1.49) 2.49
- --------------------------------------------------------------------------------------------------
Total from investment
operations 2.65 1.13 2.74 2.65 (1.43) 2.49
- --------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.16) (0.08) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- (0.28) -- -- -- --
- --------------------------------------------------------------------------------------------------
Total distributions (0.16) (0.36) (0.04) (0.02) (0.03) --
- --------------------------------------------------------------------------------------------------
Net asset value, end of
period $ 19.62 $ 17.13 $ 16.36 $ 13.66 $ 11.03 $ 12.49
==================================================================================================
Total return(a) 15.49% 6.94% 20.05% 24.04% (11.48)% 24.90%
==================================================================================================
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $240,314 $211,023 $165,738 $82,257 $55,019 $23,533
==================================================================================================
Ratio of expenses to
average net assets 0.91%(b) 0.93% 0.96% 1.15%(c) 1.27%(d) 1.98%(c)(d)
==================================================================================================
Ratio of net investment
income (loss) to
average net assets 0.80%(b) 0.68% 0.78% 0.75%(c) 0.60%(e) (0.15)%(c)(e)
==================================================================================================
Portfolio turnover rate 76% 57% 59% 67% 64% 26%
==================================================================================================
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $232,550,286
(c) Annualized.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses to
average net assets prior to fee waivers and/or expense reimbursements were
1.28% and 3.06% (annualized), for January 1995 and 1994 respectively.
(e) After fee waivers and/or expense reimbursements. Ratios of net investment
income (loss) to average net assets prior to fee waivers and/or expense
reimbursements were 0.59% and (1.23)% (annualized), for January 1995 and
1994 respectively.
AIM V.I. INTERNATIONAL EQUITY FUND
129
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. International Equity Fund, a series of shares of common stock of AIM
Variable Insurance Funds, Inc. including the schedule of investments as of
December 31, 1998, the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the three years in the
period then ended, the eleven month period ended December 31, 1995, the year
ended January 31, 1995, and the period May 5, 1993 (commencement of operations)
through January 31, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. International Equity Fund, as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, the eleven month period ended
December 31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. INTERNATIONAL EQUITY FUND
130
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND PRODUCES COMPETITIVE YIELDS
IN 1998'S VOLATILE MARKETS
A roundtable discussion with the Fund management team for AIM V.I. Money Market Fund
for the fiscal year ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. HOW DID THE AIM V.I. MONEY rate by 0.25% on September 29. Few people
MARKET FUND PERFORM DURING THE were assuaged by the action. Two weeks -----------------
FISCAL YEAR? later, in an unusual inter-meeting move,
A. In a year of record market volatility the Fed lowered the federal funds rate and . . . the Fed appears to
and uncertainty among investors, the the discount rate by 0.25%, and a fierce
Fund's management team maintained a market rally ensued. Both rates were low- have adopted a "wait and see" attitude
weighted average maturity (WAM) in the ered by 0.25% again in November. The
14- to 23-day range. As of December 31, yield on the one-year U.S. Treasury bill, because inflation sits
1998, the WAM stood at 21 days and the which was as high as 5.32% in early July,
seven-day yield for the Fund was 4.56%. dropped to 4.37% in early December. By at its lowest point in more than
the close of the fiscal year, markets were
Q. WHY WAS THERE SO MUCH VOLA- enjoying relative equilibrium. At their a decade . . .
TILITY IN 1998? final policy meeting of the year, the Fed
A. Throughout the first half of the year, opted to leave interest rates alone for the -----------------
markets were influenced by anticipation time being.
that the Federal Reserve Board (the Fed) Q. HOW WILL THE FUND RESPOND TO
would raise interest rates in light of the Q. WHAT IS THE MARKET OUTLOOK THIS ENVIRONMENT?
continued feverish growth of the U.S. FOR 1999? A. The Fund's short weighted average
economy. In late July testimony before A. At the close of the fiscal year, the maturity makes it capable of responding
Congress, Fed Chairman Alan Greenspan consumer price index was on track to record quickly to any change in rates. It can
intimated that the potential threat of its smallest annual increase since 1986, take advantage of any reversal in
inflation could lead the Fed to raise when the index rose just 1.1%. The U.S. interest rates to provide competitive
interest rates. economy exceeded many forecasts and yield while maintaining a conservative
Market sentiment shifted over the sum- grew by 3.3% during the third quarter. position with respect to interest-rate
mer amid myriad financial troubles in And while the Fed appears to have adopt- risk.
Japan, Asia and Latin America; Russia's ed a "wait and see" attitude because infla-
effective default on its government debt; tion sits at its lowest point in more than The Consumer Price Index is
and the widely noted collapse of several a decade, some analysts expect more rate a measure of change in consumer
hedge funds. In the fall, when the threat cuts in the coming year as the U.S. econo- prices as determined by the U.S.
of a global credit crunch loomed, the Fed my continues to slow and world markets Bureau of Labor Statistics.
finally lowered interest rates to pump liq- continue to recover.
uidity and confidence into the markets and After offering some disappointments An investment in the Fund
demonstrated that it would intervene to as the year came to a close, corporate is not a deposit of a bank
forestall a recession in the United States. profits in the United States are expected and is not insured or
to be mixed and unemployment on the rise guaranteed by the Federal
Q. WHAT HAPPENED TO INTEREST RATES? in 1999. Since experiencing the markets' Deposit Insurance Corporation
A. In an attempt to calm the nerves of roller coaster ride in 1998, many analysts or any other government agency.
investors who were shifting their money also believe that high volatility may be There can be no assurance that
from equity markets to any security con- here to stay, as companies prepare to the Fund will be able to maintain
sidered liquid--a worldwide flight to compete in this new, uncertain a stable net asset value
quality--the Fed cut the federal funds environment. of $1.00 per share.
</TABLE>
AIM V.I. MONEY MARKET FUND 131
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
COMMERCIAL PAPER - 42.60%(a)
ASSET-BACKED SECURITIES - MULTI-PURPOSE - 22.50%
Bavaria TRR Corp.
5.20%, 03/02/99 $ 2,000 $ 1,982,667
- ---------------------------------------------------------------------
Clipper Receivables Corp.
5.75%, 01/08/99 3,000 2,996,646
- ---------------------------------------------------------------------
Edison Asset Securitization, LLC
5.30%, 01/29/99 3,000 2,987,634
- ---------------------------------------------------------------------
Falcon Asset Securitization Corp.
5.28%, 01/19/99 500 498,680
- ---------------------------------------------------------------------
Mont Blanc Capital Corp.
5.20%, 01/13/99 2,000 1,996,533
- ---------------------------------------------------------------------
Monte Rosa Capital Corp.
5.32%, 01/21/99 1,000 997,045
- ---------------------------------------------------------------------
Preferred Receivables Funding Corp.
5.25%, 03/11/99 2,000 1,979,875
- ---------------------------------------------------------------------
5.06%, 04/21/99 1,000 984,539
- ---------------------------------------------------------------------
14,423,619
- ---------------------------------------------------------------------
ASSET-BACKED SECURITIES - TRADE RECEIVABLES - 6.21%
Corporate Asset Funding Co.
5.20%, 02/17/99 1,000 993,211
- ---------------------------------------------------------------------
Delaware Funding Corp.
5.45%, 01/11/99 2,000 1,996,972
- ---------------------------------------------------------------------
5.15%, 03/11/99 1,000 990,129
- ---------------------------------------------------------------------
3,980,312
- ---------------------------------------------------------------------
BANKS - DOMESTIC - 3.10%
First Chicago Financial Corp.
5.26%, 02/19/99 2,000 1,985,681
- ---------------------------------------------------------------------
FINANCE - MULTIPLE INDUSTRY - 3.08%
General Electric Capital Corp.
5.05%, 04/06/99 2,000 1,973,347
- ---------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 4.61%
Colgate-Palmolive Co.
4.85%, 04/22/99 3,000 2,955,138
- ---------------------------------------------------------------------
INSURANCE (LIFE) - 1.56%
Hancock (John) Capital Corp.
5.35%, 01/22/99 1,000 996,879
- ---------------------------------------------------------------------
INSURANCE (OTHER) - 1.54%
Marsh & McLennan Companies, Inc.
5.10%, 03/22/99 1,000 988,667
- ---------------------------------------------------------------------
Total Commercial Paper (Cost $27,303,643) 27,303,643
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PAR
(000) VALUE
<S> <C> <C>
CORPORATE NOTES - 1.56%
AUTOMOBILE - 1.56%
Ford Motor Credit Co.
5.625%, 01/15/99 (Cost $1,000,070) $ 1,000 $ 1,000,070
- ----------------------------------------------------------------------------
MASTER NOTE AGREEMENTS - 12.48%(b)
Citicorp Securities, Inc.
5.75%, 01/25/99(c) 2,000 2,000,000
- ----------------------------------------------------------------------------
Merrill Lynch Mortgage Capital, Inc.
5.78%, 08/16/99(d) 3,000 3,000,000
- ----------------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co.
5.60%, 05/24/99(e) 3,000 3,000,000
- ----------------------------------------------------------------------------
Total Master Note Agreements
(Cost $8,000,000) 8,000,000
- ----------------------------------------------------------------------------
TIME DEPOSITS - 4.68%
BANKS - FOREIGN - 4.68%
Credit Communal de Belgique
5.125%, 01/04/99 (Cost $3,000,000) 3,000 3,000,000
- ----------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 3.12%
Federal National Mortgage Association
4.696%, 06/02/99(f) (Cost $2,000,000) 2,000 2,000,000
- ----------------------------------------------------------------------------
Total Investments, excluding Repurchase Agreements 41,303,713
- ----------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 35.39%(g)
Bear, Stearns & Co., Inc.,
4.85%(h) 3,000 3,000,000
- ----------------------------------------------------------------------------
J.P. Morgan Securities, Inc.,
4.75%, 01/04/99(i) 15,000 15,000,000
- ----------------------------------------------------------------------------
SBC Warburg Dillon Read Securities, Inc.,
4.75%, 01/04/99(j) 4,677 4,676,787
- ----------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $22,676,787) 22,676,787
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS - 99.83% 63,980,500(k)
- ----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.17% 109,823
- ----------------------------------------------------------------------------
NET ASSETS - 100.00% $64,090,323
============================================================================
</TABLE>
AIM V.I. MONEY MARKET FUND
132
<PAGE>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Some commercial paper is traded on a discount basis. In such cases, the
interest rate shown represents the rate of discount paid or received at the
time of purchase by the Fund.
(b) The investments in master note agreements are through participation in
joint accounts with other mutual funds, private accounts, and certain
nonregistered investment companies managed by the investment advisor or its
affiliates.
(c) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon 3 business days' notice to the issuer.
Interest rates on master notes are redetermined periodically. Rate shown is
the rate in effect on 12/31/98.
(d) The Portfolio may demand prepayment of notes purchased under the Master
Note Purchase Agreement upon 2 days' notice to the issuer. Interest rates
on master notes are redetermined periodically. Rate shown is the rate in
effect on 12/31/98.
(e) Master Note Purchase Agreement may be terminated by either party upon 3
business days' prior written notice. Interest rates on master notes are
redetermined periodically. Rate shown is the rate in effect on 12/31/98.
(f) Interest rates are redetermined weekly. Rate shown is the rate in effect on
12/31/98.
(g) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(h) Open joint repurchase agreement entered into 12/31/98. Either party may
terminate the agreement upon demand. Interest rates are redetermined daily.
Collateralized by $354,763,000 U.S. Government obligations, 0% to 8.65% due
01/15/99 to 06/11/18 with an aggregate market value at 12/31/98 of
$360,262,932.
(i) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$500,263,889. Collateralized by $606,702,000 U.S. Government obligations,
0% to 7.55% due 01/04/99 to 10/03/22 with an aggregate market value at
12/31/98 of $510,001,764.
(j) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$1,000,527,778. Collateralized by $2,207,068,000 U.S. Government
obligations, 0% to 6.75% due 06/30/99 to 11/15/21 with an aggregate market
value at 12/31/98 of $1,020,001,079.
(k) Also represents cost for federal income tax purposes.
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
133
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at value (cost
$41,303,713) $ 41,303,713
- --------------------------------------------------------------------------
Repurchase agreements (cost $22,676,787) 22,676,787
- --------------------------------------------------------------------------
Receivables for:
Capital stock sold 78,786
- --------------------------------------------------------------------------
Interest receivable 71,601
- --------------------------------------------------------------------------
Investment for deferred compensation plan 22,139
- --------------------------------------------------------------------------
Other assets 385
- --------------------------------------------------------------------------
Total assets 64,153,411
- --------------------------------------------------------------------------
LIABILITIES:
Payables for:
Capital stock reacquired 80
- --------------------------------------------------------------------------
Deferred compensation plan 22,139
- --------------------------------------------------------------------------
Accrued advisory fees 21,659
- --------------------------------------------------------------------------
Accrued directors' fees 293
- --------------------------------------------------------------------------
Accrued operating expenses 18,917
- --------------------------------------------------------------------------
Total liabilities 63,088
- --------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 64,090,323
==========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- --------------------------------------------------------------------------
Outstanding 64,090,266
==========================================================================
Net asset value, offering and redemption price per share $ 1.00
==========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $3,483,093
- ----------------------------------------------------------------
EXPENSES:
Advisory fees 252,407
- ----------------------------------------------------------------
Administrative services fees 36,480
- ----------------------------------------------------------------
Custodian fees 26,470
- ----------------------------------------------------------------
Directors' fees and expenses 8,885
- ----------------------------------------------------------------
Other 43,075
- ----------------------------------------------------------------
Total expenses 367,317
- ----------------------------------------------------------------
Net investment income 3,115,776
- ----------------------------------------------------------------
Net increase in net assets resulting from operations $3,115,776
================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. MONEY MARKET FUND
134
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,115,776 $ 3,190,054
- ---------------------------------------------------------------------------
Net increase in net assets resulting from
operations 3,115,776 3,190,054
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment
income (3,115,776) (3,190,054)
- ---------------------------------------------------------------------------
Net increase (decrease) from capital stock
transactions 5,455,702 (4,894,872)
- ---------------------------------------------------------------------------
Net increase (decrease) in net assets 5,455,702 (4,894,872)
- ---------------------------------------------------------------------------
NET ASSETS:
Beginning of year 58,634,621 63,529,493
- ---------------------------------------------------------------------------
End of year $64,090,323 $58,634,621
===========================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $64,090,266 $58,634,564
- ---------------------------------------------------------------------------
Undistributed net realized gain from investment
securities 57 57
- ---------------------------------------------------------------------------
$64,090,323 $58,634,621
===========================================================================
</TABLE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Money Market Fund (the "Fund"). The Fund's investment
objective is to seek to provide as high a level of current income as is
consistent with the preservation of capital and liquidity. Currently, shares
of the Fund are sold only to insurance company separate accounts to fund the
benefits of variable annuity contracts and variable life insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - The Fund's securities are valued on the basis of
amortized cost which approximates market value. This method values a
security at its cost on the date of purchase and thereafter, assumes a
constant amortization to maturity of any discount or premiums.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income, adjusted for amortization of premiums and
discounts on investments, is recorded as earned from settlement date and is
recorded on the accrual basis. Distributions to shareholders are declared
and paid daily.
C. Federal Income Taxes - It is the Fund's policy to continue to comply with
the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income and
capital gains to its shareholders. Therefore, no provision for federal
income taxes is recorded in the financial statements.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with A I
M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.40% of
the first $250 million of the Fund's average daily net assets, plus 0.35% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing
AIM V.I. MONEY MARKET FUND
135
<PAGE>
accounting services and other administrative services to the Fund. During the
year ended December 31, 1998, AIM was reimbursed $36,480 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$3,548 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest directors' fees,
if so elected by a director, in mutual fund shares in accordance with a
deferred compensation plan.
NOTE 4 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold 100,181,770 $100,181,770 88,948,357 $ 88,948,357
- ---------------------- ----------- ------------ ----------- ------------
Issued as reinvestment
of dividends 3,115,776 3,115,776 3,190,054 3,190,054
- ---------------------- ----------- ------------ ----------- ------------
Reacquired (97,841,844) (97,841,844) (97,033,283) (97,033,283)
- ---------------------- ----------- ------------ ----------- ------------
5,455,702 $ 5,455,702 (4,894,872) $ (4,894,872)
=========== ============ =========== ============
</TABLE>
NOTE 5 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, the
eleven months ended December 31, 1995, the year ended January 31, 1995 and the
period May 5, 1993 (date operations commenced) through January 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------------- -------------------
1998 1997 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment income 0.05 0.05 0.05 0.05 0.04 0.02
- ----------------------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income (0.05) (0.05) (0.05) (0.05) (0.04) (0.02)
- ----------------------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================= ======= ======= ======= ======= ======= =======
Total return 5.06% 5.14% 4.97% 5.69%(a) 3.98% 2.27%(a)
======================= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of
period (000s omitted) $64,090 $58,635 $63,529 $65,506 $31,017 $13,891
======================= ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets 0.58%(b) 0.59% 0.55% 0.53%(a) 0.63%(c) 0.95%(a)(d)
======================= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets 4.94%(b) 5.01% 4.84% 5.40%(a) 4.14%(c) 2.29%(a)(d)
======================= ======= ======= ======= ======= ======= =======
</TABLE>
(a) Annualized.
(b) Ratios are based on average daily net assets of $63,101,740.
(c) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average daily net assets prior to fee waivers
and/or expense reimbursements were 0.70% and 4.07%, respectively.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses and
net investment income to average daily net assets prior to fee waivers
and/or expense reimbursements were 1.53% (annualized) and 1.70%
(annualized), respectively.
AIM V.I. MONEY MARKET FUND
136
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Money Market Fund, a series of shares of common stock of AIM Variable
Insurance Funds, Inc. including the schedule of investments as of December 31,
1998, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the three years in the period
then ended, the eleven month period ended December 31, 1995, the year ended
January 31, 1995, and the period May 5, 1993 (commencement of operations)
through January 31, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Money Market Fund, as of December 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
three years in the period then ended, the eleven month period ended December
31, 1995, the year ended January 31, 1995 and the period May 5, 1993
(commencement of operations) through January 31, 1994 in conformity with
generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. MONEY MARKET FUND
137
<PAGE>
<TABLE>
<CAPTION>
The Managers' Overview
FUND OUTPACES S&P 500 IN
HIGHLY VOLATILE YEAR
A roundtable discussion with the Fund management team for AIM V.I. Value Fund
for the fiscal year ended December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Q. THIS YEAR WAS PARTICULARLY the fiscal year, the Federal Reserve Board -----------------
UNSETTLING FOR THE STOCK MARKET. (the Fed) addressed concerns about
HOW DID THE AIM V.I. VALUE credit by lowering interest rates three Through our
FUND PERFORM? times. In response, equity markets staged
A. AIM V.I. Value Fund reported outstand- an astounding rally. In November, a num- disciplined stock selection,
ing results during record market volatili- ber of mega-mergers also fueled large-
ty. The Fund produced a total annual cap stock performance. With the market we chose a number of large-cap stocks
return of 32.41%, outpacing the S&P 500, comeback, 1998 became the unprece-
which finished the year at 28.60%. dented fourth year of double-digit market that performed very well.
gains for indexes such as the S&P 500.
Q. HOW WOULD YOU DESCRIBE MARKET -----------------
CONDITIONS DURING THE FISCAL YEAR? Q. TO WHAT DO YOU ATTRIBUTE THE
A.The stock market experienced its most FUND'S OUTSTANDING PERFORMANCE?
volatile year since 1987. In the first half A.Through our disciplined stock selec-
of 1998, U.S. and European stocks con- tion, we chose a number of large-cap than doubled over the year. U.S.-based
tinued to enjoy a strong bull market. But stocks that performed very well. In partic- Guidant, the leading maker of cardiovas-
beginning in July, markets fell as fears of ular, our top three holdings--MCI cular therapeutic devices, including pace-
a global credit crunch spread from WorldCom, Guidant and Nokia--made makers, also doubled its stock price over
emerging markets to the United States strong gains in the last quarter of 1998. the year. Finland's Nokia, one of the
and Europe. Factors contributing to the MCI WorldCom, formed in September by world's leading manufacturers of mobile
market decline included a Russian default the merger of MCI and WorldCom, is a phones, was another top performer in the
on government debt, the Asian financial global telecommunications powerhouse. Fund's portfolio as its stock price almost
crisis and the collapse of some highly One of the top-performing large stocks quadrupled in 1998. We chose each of
leveraged hedge funds. Near the end of in 1998, MCI WorldCom's stock price more these stocks for fundamental reasons: All
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO COMPOSITION
As of 12/31/98, based on total net assets
<S> <C> <C> <C>
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
1. MCI WorldCom, Inc. 4.86% 1. Computers (Software & Services) 6.87%
2. Guidant Corp. 4.11 2. Financial (Diversified) 6.77
3. Nokia Oyj A.B.-Class A-ADR 3.55 3. Retail (General Merchandise) 5.17
4. American International Group, Inc. 3.40 4. Health Care (Medical Products & Supplies) 4.97
5. Pharmacia & Upjohn, Inc. 3.18 5. Communications Equipment 4.86
6. Time Warner, Inc. 3.05 6. Telecommunications (Long Distance) 4.86
7. Cox Communications, Inc.-Class A 2.26 7. Broadcasting (Television, Radio & Cable) 4.68
8. Microsoft Corp. 2.13 8. Insurance (Multi-Line) 4.34
9. Colgate Palmolive Co. 2.08 9. Heath Care (Drugs-Major Pharmaceuticals) 4.05
10. Wal-Mart Stores, Inc. 2.05 10. Computers (Hardware) 3.23
Please keep in mind that the Fund's portfolio composition is subject to change and there is no assurance the Fund will continue
to hold any particular security.
</TABLE>
138 AIM V.I. VALUE FUND
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
three companies are leaders in their during the year. We reduced our bank Windows 98. Its stock is one of the leading
respective fields, and each has strong holdings because of weakness in this sec- S&P 500 holdings. In fact, Microsoft has
prospects for continued earnings growth. tor in the third quarter. Stocks of many surpassed General Electric as the world's
Near the end of the fiscal year, the market U.S. banks and brokerages fell out of leading company in terms of market capi-
took notice of these exceptional companies. favor because of global concerns about talization--the value of all of its out-
credit and the near collapse of a major standing stock.
Q. WHAT CHANGES DID YOU MAKE IN hedge fund. Technology stocks powered the market
THE FUND'S PORTFOLIO OVER THE YEAR? At the same time, we increased our rally at the end of the fiscal year.
A. Technology and financial sectors have weightings in technology stocks, particu- Investor excitement about technology
long been the most important areas for larly in computer software and services. focused pri-marily on the Internet and its
AIM V.I. Value Fund. That remained the Our top technology stock, Microsoft, potential for explosive growth over the
case at the end of 1998, but our weight- turned in outstanding earnings in 1998 as next five to 10 years. The Fund doesn't
ings in each sector changed substantially it introduced its new operating system, own any ".com" stocks because their
earnings track record is not established
GROWTH OF A $10,000 INVESTMENT AVERAGE ANNUAL TOTAL RETURN enough to meet our investment criteria.
From 5/5/93-12/31/98 As of 10/31/98 Instead we invest in telecommunications
companies and equip-ment makers that are
AIM V.I. Lipper Growth Inception (5/5/93) 21.90% building the infra-sructure for the
Value Fund Fund Index S&P 500 5 Years 21.70 Internet.
(In thousands) 1 Year 32.41
5/5/93 $10,000 $10,000 $10,000 Q. WHAT IS YOUR OUTLOOK FOR THE
7/31/93 10,690 10,417 10,254 ECONOMY AND EQUITY MARKETS?
10/31/93 11,370 11,111 10,778 A. We expect continued volatility in the
1/31/94 12,193 11,564 11,169 stock markets, perhaps as much as we
4/30/94 11,793 10,930 10,532 experienced in 1998. At the same time,
7/31/94 11,592 10,906 10,783 we're optimistic that the United States will
10/31/94 12,163 11,338 11,193 avoid a recession in 1999. The economy is
1/31/95 11,945 11,042 11,227 likely to experience annual gross domestic
4/30/95 13,400 12,131 12,365 product growth in the 1.5% to 2% range,
7/31/95 15,833 13,691 13,591 so low inflation and low interest rates
10/31/95 16,146 14,057 14,147 should continue. However, with global
1/31/96 16,346 14,946 15,561 markets, especially in Asia, experiencing
4/30/96 16,750 15,634 16,093 weakness and the U.S. economy expanding
7/31/96 16,387 14,904 15,835 more slowly, many companies will find it
10/31/96 17,862 16,437 17,550 difficult to produce earnings growth. With
1/31/97 19,342 18,044 19,659 our investment approach, which focuses
4/30/97 19,331 17,838 20,133 on companies with strong earnings
7/31/97 23,304 21,425 24,081 prospects that are undervalued relative to
10/31/97 22,705 21,108 23,181 the market as a whole, we remain confi-
12/31/97 23,311 22,106 24,945 dent that the Fund is positioned well as we
4/30/98 26,201 24,940 28,393 enter the coming year.
6/30/98 27,424 25,380 29,029
12/31/98 30,659 27,602 31,748
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE. RESULTS OF AN
INVESTMENT MADE TODAY MAY DIFFER SUBSTANTIALLY FROM THE HISTORICAL PERFORMANCE SHOWN.
The performance figures shown represent the AIM V.I. Value Fund and are not
intended to reflect actual annuity values, and do not reflect charges at the
separate account level which, if applied, would lower the performance
results. The Fund's performance figures are historical and reflect
reinvestment of all distributions and changes in the net asset value. The
Fund's investment return and principal value will fluctuate so that Fund
shares, when redeemed, may be worth more or less than their original cost.
Source: Towers Data Systems HYPO(REGISTERED TRADEMARK).
The Standard & Poor's Composite Index of 500 Stocks (S&P 500) is a
group of unmanaged securities widely regarded by investors as representative
of the stock market in general.
The unmanaged Lipper Growth Fund Index represents an average of the
performance of the 30 largest growth mutual funds. It is compiled by Lipper,
Inc., an independent mutual fund performance monitor. Data for the S&P 500
and the Lipper Index are for the period 4/30/93-12/31/98.
An investment cannot be made in any indexes listed. Index results
include reinvested dividends.
</TABLE>
AIM V.I. VALUE FUND 139
<PAGE>
SCHEDULE OF INVESTMENTS
December 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DOMESTIC COMMON STOCKS - 85.50%
AIRLINES - 0.38%
Continental Airlines, Inc.(a) 136,900 $ 4,586,150
- ------------------------------------------------------------------
AUTOMOBILES - 0.21%
Ford Motor Co. 44,000 2,582,250
- ------------------------------------------------------------------
BANKS (MONEY CENTER) - 1.55%
Chase Manhattan Corp. (The) 278,000 18,921,375
- ------------------------------------------------------------------
BROADCASTING (TELEVISION, RADIO & CABLE) - 4.68%
Comcast Corp.-Class A 105,000 6,162,188
- ------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 400,000 27,650,000
- ------------------------------------------------------------------
MediaOne Group, Inc.(a) 497,500 23,382,500
- ------------------------------------------------------------------
57,194,688
- ------------------------------------------------------------------
BUILDING MATERIALS - 0.48%
Masco Corp. 205,000 5,893,750
- ------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.05%
Comverse Technology, Inc.(a) 120,000 8,520,000
- ------------------------------------------------------------------
Lucent Technologies, Inc. 39,000 4,290,000
- ------------------------------------------------------------------
12,810,000
- ------------------------------------------------------------------
COMPUTERS (HARDWARE) - 3.23%
Dell Computer Corp.(a) 245,000 17,930,938
- ------------------------------------------------------------------
International Business Machines Corp. 46,000 8,498,500
- ------------------------------------------------------------------
Sun Microsystems, Inc.(a) 152,000 13,015,001
- ------------------------------------------------------------------
39,444,439
- ------------------------------------------------------------------
COMPUTERS (NETWORKING) - 1.64%
Cisco Systems, Inc.(a) 216,000 20,047,500
- ------------------------------------------------------------------
COMPUTERS (PERIPHERALS) - 0.98%
EMC Corp.(a) 104,000 8,840,000
- ------------------------------------------------------------------
Lexmark International Group, Inc.(a) 31,000 3,115,500
- ------------------------------------------------------------------
11,955,500
- ------------------------------------------------------------------
COMPUTERS (SOFTWARE & SERVICES) - 6.87%
BMC Software, Inc.(a) 365,000 16,265,313
- ------------------------------------------------------------------
Computer Sciences Corp.(a) 190,000 12,243,125
- ------------------------------------------------------------------
Microsoft Corp.(a) 188,000 26,073,251
- ------------------------------------------------------------------
Sterling Commerce, Inc.(a) 153,000 6,885,000
- ------------------------------------------------------------------
Unisys Corp.(a) 655,000 22,556,563
- ------------------------------------------------------------------
84,023,252
- ------------------------------------------------------------------
CONSUMER FINANCE - 1.05%
MBNA Corp. 122,000 3,042,375
- ------------------------------------------------------------------
Providian Financial Corp. 130,500 9,787,500
- ------------------------------------------------------------------
12,829,875
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
DISTRIBUTORS (FOOD & HEALTH) - 0.07%
Cardinal Health, Inc. 10,650 $ 808,069
- ----------------------------------------------------------------------
ELECTRIC COMPANIES - 0.11%
Wisconsin Energy Corp. 43,600 1,370,675
- ----------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 1.75%
General Electric Co. 209,000 21,331,063
- ----------------------------------------------------------------------
ELECTRONICS (INSTRUMENTATION) - 0.11%
Waters Corp.(a) 15,900 1,387,275
- ----------------------------------------------------------------------
ENTERTAINMENT - 3.05%
Time Warner, Inc. 600,000 37,237,500
- ----------------------------------------------------------------------
FINANCIAL (DIVERSIFIED) - 6.77%
Ambac Financial Group, Inc. 73,000 4,393,687
- ----------------------------------------------------------------------
American Express Co. 98,000 10,020,500
- ----------------------------------------------------------------------
American General Corp. 85,000 6,630,000
- ----------------------------------------------------------------------
Associates First Capital Corp.-Class A 370,000 15,678,750
- ----------------------------------------------------------------------
Citigroup, Inc. 93,000 4,603,500
- ----------------------------------------------------------------------
Fannie Mae 245,000 18,130,000
- ----------------------------------------------------------------------
Freddie Mac 324,000 20,877,750
- ----------------------------------------------------------------------
Morgan Stanley, Dean Witter, Discover & Co. 35,000 2,485,000
- ----------------------------------------------------------------------
82,819,187
- ----------------------------------------------------------------------
HEALTH CARE (DIVERSIFIED) - 1.81%
Bristol-Myers Squibb Co. 142,000 19,001,376
- ----------------------------------------------------------------------
Warner-Lambert Co. 41,000 3,082,688
- ----------------------------------------------------------------------
22,084,064
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS-GENERIC & OTHER) - 0.33%
Watson Pharmaceuticals, Inc.(a) 64,200 4,036,575
- ----------------------------------------------------------------------
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 4.05%
Merck & Co., Inc. 72,000 10,633,500
- ----------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 685,000 38,788,125
- ----------------------------------------------------------------------
49,421,625
- ----------------------------------------------------------------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 4.97%
Allegiance Corp. 77,000 3,590,125
- ----------------------------------------------------------------------
Guidant Corp. 455,000 50,163,750
- ----------------------------------------------------------------------
Medtronic, Inc. 93,700 6,957,225
- ----------------------------------------------------------------------
60,711,100
- ----------------------------------------------------------------------
HEALTH CARE (SPECIALIZED SERVICES) - 0.52%
Alza Corp.(a) 122,500 6,400,625
- ----------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
140
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.08%
Colgate-Palmolive Co. 273,000 $ 25,354,875
- ------------------------------------------------------------------------
INSURANCE (LIFE/HEALTH) - 0.32%
Provident Companies, Inc. 95,000 3,942,500
- ------------------------------------------------------------------------
INSURANCE (MULTI-LINE) - 4.34%
Ace, Ltd. 163,000 5,613,313
- ------------------------------------------------------------------------
American International Group, Inc. 430,000 41,548,750
- ------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 107,500 5,899,063
- ------------------------------------------------------------------------
53,061,126
- ------------------------------------------------------------------------
INSURANCE (PROPERTY-CASUALTY) - 2.10%
Allstate Corp. (The) 179,500 6,933,187
- ------------------------------------------------------------------------
EXEL Ltd.-Class A 145,000 10,875,000
- ------------------------------------------------------------------------
Progressive Corp. 46,000 7,791,250
- ------------------------------------------------------------------------
25,599,437
- ------------------------------------------------------------------------
INVESTMENT BANKING/BROKERAGE - 0.22%
Merrill Lynch & Co., Inc.(b) 40,000 2,670,000
- ------------------------------------------------------------------------
LODGING-HOTELS - 2.19%
Carnival Corp. 412,400 19,795,200
- ------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 187,500 6,937,500
- ------------------------------------------------------------------------
26,732,700
- ------------------------------------------------------------------------
MANUFACTURING (DIVERSIFIED) - 1.62%
Tyco International Ltd. 262,000 19,764,624
- ------------------------------------------------------------------------
NATURAL GAS - 1.00%
El Paso Energy Corp. 85,000 2,959,062
- ------------------------------------------------------------------------
Enron Corp. 111,000 6,333,937
- ------------------------------------------------------------------------
Williams Companies, Inc. (The) 92,000 2,869,250
- ------------------------------------------------------------------------
12,162,249
- ------------------------------------------------------------------------
OIL (INTERNATIONAL INTEGRATED) - 0.25%
Amoco Corp. 50,000 3,018,750
- ------------------------------------------------------------------------
PERSONAL CARE - 1.07%
Avon Products, Inc. 295,000 13,053,750
- ------------------------------------------------------------------------
PHOTOGRAPHY/IMAGING - 1.74%
Xerox Corp. 180,000 21,240,000
- ------------------------------------------------------------------------
PUBLISHING - 0.32%
Dow Jones & Co., Inc. 82,000 3,946,250
- ------------------------------------------------------------------------
PUBLISHING (NEWSPAPERS) - 0.26%
New York Times Co.-Class A (The) 90,000 3,121,875
- ------------------------------------------------------------------------
RAILROADS - 0.27%
Kansas City Southern Industries, Inc. 66,000 3,246,375
- ------------------------------------------------------------------------
RETAIL (BUILDING SUPPLIES) - 0.83%
Lowe's Companies, Inc. 198,000 10,135,125
- ------------------------------------------------------------------------
RETAIL (DEPARTMENT STORES) - 0.21%
Federated Department Stores, Inc.(a) 58,000 2,526,625
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
RETAIL (FOOD CHAINS) - 2.09%
Albertson's, Inc. 30,000 $ 1,910,624
- ------------------------------------------------------------------------------
Kroger Co.(a) 200,000 12,100,000
- ------------------------------------------------------------------------------
Safeway, Inc.(a) 188,000 11,456,249
- ------------------------------------------------------------------------------
25,466,873
- ------------------------------------------------------------------------------
RETAIL (GENERAL MERCHANDISE) - 5.17%
Costco Companies, Inc.(a) 205,000 14,798,437
- ------------------------------------------------------------------------------
Dayton Hudson Corp. 432,000 23,436,000
- ------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 307,600 25,050,174
- ------------------------------------------------------------------------------
63,284,611
- ------------------------------------------------------------------------------
SERVICES (ADVERTISING/MARKETING) - 1.61%
Omnicom Group, Inc. 340,000 19,720,000
- ------------------------------------------------------------------------------
SERVICES (COMMERCIAL & CONSUMER) - 0.34%
Stewart Enterprises, Inc.-Class A 187,000 4,160,750
- ------------------------------------------------------------------------------
SERVICES (COMPUTER SYSTEMS) - 0.63%
SunGard Data Systems, Inc.(a) 195,300 7,750,969
- ------------------------------------------------------------------------------
SERVICES (DATA PROCESSING) - 0.36%
Ceridian Corp.(a) 25,000 1,745,313
- ------------------------------------------------------------------------------
Equifax, Inc. 78,000 2,666,625
- ------------------------------------------------------------------------------
4,411,938
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.61%
AirTouch Communications, Inc.(a) 272,000 19,617,999
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS (LONG DISTANCE) - 4.86%
MCI WorldCom, Inc.(a) 827,413 59,366,882
- ------------------------------------------------------------------------------
TELEPHONE - 1.36%
BellSouth Corp. 192,000 9,576,000
- ------------------------------------------------------------------------------
SBC Communications, Inc. 131,000 7,024,875
- ------------------------------------------------------------------------------
16,600,875
- ------------------------------------------------------------------------------
TOBACCO - 1.09%
Philip Morris Companies, Inc. 248,000 13,268,000
- ------------------------------------------------------------------------------
WASTE MANAGEMENT - 1.90%
Waste Management, Inc. 496,998 23,172,532
- ------------------------------------------------------------------------------
Total Domestic Common Stocks (Cost $733,092,819) 1,044,294,227
- ------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY INTERESTS - 4.67%
CANADA - 0.40%
Royal Bank of Canada (Banks-Major Regional) 97,000 4,853,170
- ------------------------------------------------------------------------------
FINLAND - 3.56%
Nokia Oyj A.B.-Class A (Communications Equipment) 1,000 121,652
- ------------------------------------------------------------------------------
Nokia Oyj A.B.-Class A-ADR (Communications
Equipment) 360,000 43,357,500
- ------------------------------------------------------------------------------
43,479,152
- ------------------------------------------------------------------------------
SWEDEN - 0.25%
Telefonaktiebolaget LM Ericsson-ADR (Communications
Equipment) 130,000 3,111,875
- ------------------------------------------------------------------------------
</TABLE>
AIM V.I. VALUE FUND
141
<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
<S> <C> <C>
UNITED KINGDOM - 0.46%
British Petroleum Co. PLC-ADR (Oil-International
Integrated) 32,500 $ 2,912,813
- --------------------------------------------------------------------------------
WPP Group PLC (Services-Advertising/Marketing) 440,000 2,674,495
- --------------------------------------------------------------------------------
5,587,308
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $37,148,648) 57,031,505
- --------------------------------------------------------------------------------
Total Investments, excluding repurchase agreements
(Cost $770,241,467) 1,101,325,732
- --------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL
AMOUNT
<S> <C> <C>
REPURCHASE AGREEMENTS - 10.83%(c)
Goldman Sachs & Co., 4.40%, 01/04/99(d) $77,768,447 77,768,447
- --------------------------------------------------------------------------------
J.P. Morgan Securities Inc., 4.75%, 01/04/99(e) 54,514,006 54,514,006
- --------------------------------------------------------------------------------
Total Repurchase Agreements (Cost $132,282,453) 132,282,453
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 101.00% 1,233,608,185
- --------------------------------------------------------------------------------
LIABILITIES LESS OTHER ASSETS - (1.00%) (12,224,640)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS - 100.00% $1,221,383,545
================================================================================
</TABLE>
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 7.
(c) Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. The collateral is marked to market
daily to ensure its market value is at least 102% of the sales price of the
repurchase agreement. The investments in some repurchase agreements are
through participation in joint accounts with other mutual funds, private
accounts and certain non-registered investment companies managed by the
investment advisor or its affiliates.
(d) Joint repurchase agreement entered into 12/3198 with a maturing value of
$700,342,222. Collateralized by $646,494,000 U.S. Government obligations,
0% to 11.75% due 02/15/99 to 04/15/28 with an aggregate market value at
12/31/98 of $714,694,897.
(e) Joint repurchase agreement entered into 12/31/98 with a maturing value of
$500,263,889. Collateralized by $606,702,000 U.S. Government obligations,
0% to 7.55% due 01/04/99 to 10/03/22 with an aggregate market value at
12/31/98 of $510,001,764.
Abbreviation:
ADR - American Depositary Receipt
See Notes to Financial Statements.
AIM V.I. VALUE FUND
142
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments, excluding repurchase agreements, at market
value (cost $770,241,467) $1,101,325,732
- ------------------------------------------------------------------------
Repurchase Agreements (cost $132,282,453) 132,282,453
- ------------------------------------------------------------------------
Receivables for:
Investments sold 2,519,615
- ------------------------------------------------------------------------
Capital stock sold 1,390,091
- ------------------------------------------------------------------------
Dividends and interest 499,599
- ------------------------------------------------------------------------
Forward currency contracts 348,763
- ------------------------------------------------------------------------
Investment for deferred compensation plan 26,193
- ------------------------------------------------------------------------
Other assets 18,530
- ------------------------------------------------------------------------
Total assets 1,238,410,976
- ------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 15,933,766
- ------------------------------------------------------------------------
Fund shares reacquired 238,496
- ------------------------------------------------------------------------
Forward currency contracts 24,155
- ------------------------------------------------------------------------
Deferred compensation 26,193
- ------------------------------------------------------------------------
Options written (premiums received $83,771) 76,250
- ------------------------------------------------------------------------
Accrued advisory fees 592,834
- ------------------------------------------------------------------------
Accrued directors' fees 200
- ------------------------------------------------------------------------
Accrued operating expenses 135,537
- ------------------------------------------------------------------------
Total liabilities 17,027,431
- ------------------------------------------------------------------------
Net assets applicable to shares outstanding $1,221,383,545
========================================================================
CAPITAL SHARES, $0.001 PAR VALUE PER SHARE:
Authorized 250,000,000
- ------------------------------------------------------------------------
Outstanding 46,535,623
========================================================================
Net asset value, offering and redemption price per share $26.25
========================================================================
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of $166,301 foreign withholding tax) $ 7,033,962
- -------------------------------------------------------------------------------
Interest 5,125,076
- -------------------------------------------------------------------------------
Total investment income 12,159,038
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 5,570,566
- -------------------------------------------------------------------------------
Administrative services fees 191,309
- -------------------------------------------------------------------------------
Custodian fees 93,826
- -------------------------------------------------------------------------------
Directors' fees and expenses 14,121
- -------------------------------------------------------------------------------
Other 108,257
- -------------------------------------------------------------------------------
Total expenses 5,978,079
- -------------------------------------------------------------------------------
Less: Expenses paid indirectly (3,727)
- -------------------------------------------------------------------------------
Net expenses 5,974,352
- -------------------------------------------------------------------------------
Net investment income 6,184,686
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES, FORWARD CURRENCY CONTRACTS, FUTURES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 35,892,808
- -------------------------------------------------------------------------------
Foreign currencies 54,577
- -------------------------------------------------------------------------------
Forward currency contracts (2,231,868)
- -------------------------------------------------------------------------------
Futures contracts (2,938,668)
- -------------------------------------------------------------------------------
Option contracts (301,361)
- -------------------------------------------------------------------------------
30,475,488
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of:
Investment securities 229,992,325
- -------------------------------------------------------------------------------
Foreign currencies 10,564
- -------------------------------------------------------------------------------
Forward currency contracts 324,688
- -------------------------------------------------------------------------------
Option contracts (214,285)
- -------------------------------------------------------------------------------
230,113,292
- -------------------------------------------------------------------------------
Net gain on investment securities, foreign currencies, futures
and option contracts 260,588,780
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $266,773,466
===============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
143
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 6,184,686 $ 5,578,959
- ------------------------------------------------------------------------------
Net realized gain from investment securities,
foreign currencies, forward currency
contracts, futures and option contracts 30,475,488 47,871,104
- ------------------------------------------------------------------------------
Net unrealized appreciation of investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 230,113,292 51,486,076
- ------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 266,773,466 104,936,139
- ------------------------------------------------------------------------------
Dividends to shareholders from net investment
income (5,622,957) (6,026,082)
- ------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains (49,732,413) (18,500,854)
- ------------------------------------------------------------------------------
Net increase from capital stock transactions 319,123,956 240,697,144
- ------------------------------------------------------------------------------
Net increase in net assets 530,542,052 321,106,347
- ------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 690,841,493 369,735,146
- ------------------------------------------------------------------------------
End of year $1,221,383,545 $690,841,493
==============================================================================
NET ASSETS CONSIST OF:
Capital (par value and additional paid-in) $ 855,502,720 $536,384,006
- ------------------------------------------------------------------------------
Undistributed net investment income 6,191,169 5,579,627
- ------------------------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 28,274,001 47,575,497
- ------------------------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, forward
currency contracts, futures and option
contracts 331,415,655 101,302,363
- ------------------------------------------------------------------------------
$1,221,383,545 $690,841,493
==============================================================================
</TABLE>
See Notes to Financial Statements.
AIM V.I. VALUE FUND
144
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
AIM Variable Insurance Funds, Inc. (the "Company"), is a Maryland corporation
organized on January 22, 1993, and is registered under the Investment Company
Act of 1940 (the "1940 Act"), as amended, as an open-end, series, management
investment company consisting of fifteen portfolios. Matters affecting each
portfolio are voted on exclusively by the shareholders of such portfolio. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only
to the AIM V.I. Value Fund (the "Fund"). The Fund's investment objective is to
achieve long-term growth of capital by investing primarily in equity
securities judged by AIM to be undervalued relative to the current or
projected earnings of the companies issuing the securities or relative to
current market values of assets owned by the companies issuing the securities
or relative to the equity market generally. Income is a secondary objective.
Currently, shares of the Fund are sold only to insurance company separate
accounts to fund the benefits of variable annuity contracts and variable life
insurance policies.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of the significant accounting policies followed by the
Fund in the presentation of its financial statements.
A. Security Valuations - A security listed or traded on an exchange (except
convertible bonds) is valued at its last sales price on the exchange where
the security is principally traded, or lacking any sales on a particular
day, the security is valued at the mean between the closing bid and asked
prices on that day. Each security traded in the over-the-counter market
(but not including securities reported on the NASDAQ National Market
System) is valued at the mean between the last bid and asked prices based
upon quotes furnished by market makers for such securities. If a mean is
not available, as is the case in some foreign markets, the closing bid will
be used absent a last sales price. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date, or absent a last sales price, at the mean of the closing bid and
asked prices. Debt obligations (including convertible bonds) are valued on
the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
yield, type of issue, coupon rate and maturity date. Securities for which
market prices are not provided by any of the above methods are valued at
the mean between last bid and asked prices based upon quotes furnished by
independent sources. Securities for which market quotations are either not
readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Company's
officers in a manner specifically authorized by the Board of Directors.
Short-term obligations having 60 days or less to maturity are valued at
amortized cost which approximates market value. Generally, trading in
foreign securities is substantially completed each day at various times
prior to the close of the New York Stock Exchange. The values of such
securities used in computing the net asset value of the Fund's shares are
determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange which will not be reflected in the
computation of the Fund's net asset value. If events materially affecting
the value of such securities occur during such period, then these
securities will be valued at their fair value as determined in good faith
by or under the supervision of the Board of Directors.
B. Securities Transactions, Investment Income and Distributions -Securities
transactions are accounted for on a trade date basis. Realized gains or
losses on sales are computed on the basis of specific identification of the
securities sold. Interest income is recorded as earned from settlement date
and is recorded on the accrual basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. On December 31, 1998
additional paid-in capital was decreased by $5,242, undistributed net
investment income was increased by $49,813 and undistributed net realized
gains was decreased by $44,571 in order to comply with the requirements of
the American Institute of Certified Public Accountants Statement of
Position 93-2. Net assets of the Fund were unaffected by the
reclassifications discussed above.
C. Federal Income Taxes - The Fund intends to comply with the requirements of
the Internal Revenue Code necessary to qualify as a regulated investment
company and, as such, will not be subject to federal income taxes on
otherwise taxable income (including net realized capital gains) which is
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements.
D. Stock Index Futures Contracts - The Fund may purchase or sell stock index
futures contracts as a hedge against changes in market conditions. Initial
margin deposits required upon entering into futures contracts are satisfied
by the segregation of specific securities or cash, and/or by securing a
standby letter of credit from a major commercial bank, as collateral, for
the account of the broker (the Fund's agent in acquiring the futures
position). During the period the futures contract is open, changes in the
value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the
contract at the end of each day's trading. Variation margin payments are
made or received depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Fund's basis in the contract. Risks include the
possibility of an illiquid market and the change in the value of the
contract may not correlate with changes in the securities being hedged.
E. Foreign Currency Translations - Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign
AIM V.I. VALUE FUND
145
<PAGE>
currencies are translated into U.S. dollar amounts on the respective dates of
such transactions. The Fund does not separately account for that portion of
the results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
F. Foreign Currency Contracts - A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a currency contract for
the amount of a purchase or sale of a security denominated in a foreign
currency in order to "lock-in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably. Outstanding forward currency contracts at
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT TO UNREALIZED
SETTLEMENT ---------------------- APPRECIATION
DATE DELIVER RECEIVE VALUE (DEPRECIATION)
---------- ------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
1/13/99 CAD 2,200,000 $ 1,425,378 1,437,868 $(12,490)
2/10/99 CAD 2,600,000 1,696,630 1,699,368 (2,738)
2/26/99 CAD 700,000 451,715 457,574 (5,859)
1/19/99 FIM 21,000,000 4,232,653 4,124,647 108,006
1/20/99 FIM 78,500,000 15,439,796 15,419,146 20,650
1/21/99 FIM 29,000,000 5,789,467 5,696,548 92,919
1/22/99 FIM 26,000,000 5,149,996 5,107,522 42,474
1/19/99 GBP 1,200,000 2,034,264 1,990,805 43,459
1/20/99 GBP 1,000,000 1,671,000 1,658,852 12,148
2/16/99 GBP 200,000 330,720 331,024 (304)
1/19/99 SEK 14,500,000 1,816,382 1,787,275 29,107
2/16/99 SEK 4,000,000 490,883 493,647 (2,764)
--------------------------------------------------------------
$40,528,884 40,204,276 $324,608
==============================================================
</TABLE>
G. Covered Call Options - The Fund may write call options, but only on a
covered basis; that is, the Fund will own the underlying security. Options
written by the Fund normally will have expiration dates between three and
nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying
security at the time the option is written. When the Fund writes a covered
call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option
is the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or a
loss if the closing purchase transaction exceeds the premium received when
the option was written) without regard to any unrealized gain or loss on
the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received.
A call option gives the purchaser of such option the right to buy, and the
writer (the Fund) the obligation to sell, the underlying security at the
stated exercise price during the option period. The purchaser of a call
option has the right to acquire the security which is the subject of the call
option at any time during the option period. During the option period, in
return for the premium paid by the purchaser of the option, the Fund has
given up the opportunity for capital appreciation above the exercise price
should the market price of the underlying security increase, but has retained
the risk of loss should the price of the underlying security decline. During
the option period, the Fund may be required at any time to deliver the
underlying security against payment of the exercise price. This obligation is
terminated upon the expiration of the option period or at such earlier time
at which the Fund effects a closing purchase transaction by purchasing (at a
price which may be higher than that received when the call option was
written) a call option identical to the one originally written.
NOTE 2 - INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Company has entered into a master investment advisory agreement with
A I M Advisors, Inc. ("AIM"). Under the terms of the master investment advisory
agreement, the Fund pays an advisory fee to AIM at an annual rate of 0.65% of
the first $250 million of the Fund's average daily net assets, plus 0.60% of
the Fund's average daily net assets in excess of $250 million.
Pursuant to a master administrative services agreement between the Company
and AIM, with respect to the Fund, the Company has agreed to reimburse certain
administrative costs incurred in providing accounting services and other
administrative services to the Fund. During the year ended December 31, 1998,
AIM was reimbursed $191,309 for such services.
The Company has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor of the
Fund's shares.
Certain officers and directors of the Company are officers of AIM and AIM
Distributors.
During the year ended December 31, 1998, the Fund incurred legal fees of
$5,050 for services rendered by Kramer, Levin, Naftalis & Frankel as counsel
to the Board of Directors. A member of that firm is a director of the Company.
NOTE 3 - INDIRECT EXPENSES
The Fund received reductions in custodian fees of $3,727 under an expense
offset arrangement. The effect of the above arrangement resulted in a
reduction of the Fund's total expenses of $3,727 during the year ended
December 31, 1998.
NOTE 4 - DIRECTORS' FEES
Directors' fees represent remuneration paid or accrued to each director who
is not an "interested person" of AIM. The Company may invest a director's
fees, if so elected by such director, in mutual fund shares in accordance with
a deferred compensation plan.
NOTE 5 - INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term
securities) purchased and sold during the year ended December 31, 1998 was
$1,106,685,292 and $810,337,550, respectively.
The amount of unrealized appreciation (depreciation) of investment securities
on a tax basis as of December 31, 1998 is as follows:
<TABLE>
<S> <C>
Aggregate unrealized appreciation of investment securities $332,234,972
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (5,428,239)
- ---------------------------------------------------------------------------
Net unrealized appreciation of investment securities $326,806,733
===========================================================================
</TABLE>
Cost of investments for tax purposes is $906,801,452.
AIM V.I. VALUE FUND
146
<PAGE>
NOTE 6 - CAPITAL STOCK
Changes in capital stock outstanding during the years ended December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold 13,690,852 $321,377,374 12,245,239 $244,753,656
- ------------------------------------------------------------------------------
Issued as reinvestment of
distributions 2,225,788 55,355,370 1,188,320 24,526,936
- ------------------------------------------------------------------------------
Reacquired (2,542,811) (57,608,788) (1,424,104) (28,583,448)
- ------------------------------------------------------------------------------
13,373,829 $319,123,956 12,009,455 $240,697,144
==============================================================================
</TABLE>
NOTE 7 - CALL OPTIONS CONTRACTS WRITTEN
Transactions in call option contracts written during the year ended December
31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- -----------
<S> <C> <C>
Beginning of period 2,102 $ 941,588
- -------------------------------------------
Written 8,349 4,655,767
- -------------------------------------------
Closed (2,906) (1,495,359)
- -------------------------------------------
Exercised (4,463) (3,094,748)
- -------------------------------------------
Expired (2,882) (923,477)
- -------------------------------------------
End of period 200 $ 83,771
===========================================
</TABLE>
Open call option contracts written at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CONTRACT STRIKE NUMBER OF PREMIUM DECEMBER 31, 1998 UNREALIZED
ISSUE MONTH PRICE CONTRACTS RECEIVED MARKET VALUE APPRECIATION
- ----- -------- ------ --------- -------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch & Co.,
Inc. Jan. 99 65 200 $83,771 $76,250 $7,521
</TABLE>
NOTE 8 - FINANCIAL HIGHLIGHTS
Shown below are the financial highlights for a share outstanding of the Fund
during each of the years in the three-year period ended December 31, 1998, the
eleven months ended December 31, 1995, the year ended January 31, 1995, and the
period May 5, 1993 (date operations commenced) through January 31, 1994.
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
------------------------------------------- ------------------
1998 1997 1996 1995 1995 1994
---------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17 $ 10.00
- ------------------------ ---------- -------- -------- -------- -------- -------
Income from investment
operations:
Net investment income 0.09 0.08 0.30 0.11 0.10 0.02
- ------------------------ ---------- -------- -------- -------- -------- -------
Net gains (losses) on
securities (both
realized and
unrealized) 6.59 4.05 2.09 4.18 (0.35) 2.17
- ------------------------ ---------- -------- -------- -------- -------- -------
Total from investment
operations 6.68 4.13 2.39 4.29 (0.25) 2.19
- ------------------------ ---------- -------- -------- -------- -------- -------
Less distributions:
Dividends from net
investment income (0.13) (0.19) (0.10) (0.01) (0.09) (0.02)
- ------------------------ ---------- -------- -------- -------- -------- -------
Distributions from net
realized gains (1.13) (0.59) (0.92) -- -- --
- ------------------------ ---------- -------- -------- -------- -------- -------
Total distributions (1.26) (0.78) (1.02) (0.01) (0.09) (0.02)
- ------------------------ ---------- -------- -------- -------- -------- -------
Net asset value, end of
period $ 26.25 $ 20.83 $ 17.48 $ 16.11 $ 11.83 $ 12.17
======================== ========== ======== ======== ======== ======== =======
Total return(a) 32.41% 23.69% 15.02% 36.25% (2.03)% 21.94%
======================== ========== ======== ======== ======== ======== =======
Ratios/supplemental data:
Net assets, end of
period (000s omitted) $1,221,384 $690,841 $369,735 $257,212 $109,257 $38,255
======================== ========== ======== ======== ======== ======== =======
Ratio of expenses to
average net assets 0.66%(b) 0.70% 0.73% 0.75%(c) 0.82% 1.00%(c)(d)
======================== ========== ======== ======== ======== ======== =======
Ratio of net investment
income to average net
assets 0.68%(b) 1.05% 2.00% 1.11%(c) 1.17% 0.51%(c)(d)
======================== ========== ======== ======== ======== ======== =======
Portfolio turnover rate 100% 127% 129% 145% 143% 87%
======================== ========== ======== ======== ======== ======== =======
</TABLE>
(a) Total returns are not annualized for periods less than one year.
(b) Ratios are based on average net assets of $907,594,296.
(c) Annualized.
(d) After fee waivers and/or expense reimbursements. Ratios of expenses and net
investment income to average net assets prior to fee waivers and/or expense
reimbursements were 1.35% (annualized) and 0.16% (annualized),
respectively.
AIM V.I. VALUE FUND
147
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
AIM Variable Insurance Funds, Inc.
We have audited the accompanying statement of assets and liabilities of AIM
V.I. Value Fund, a series of shares of common stock of AIM Variable Insurance
Funds, Inc. including the schedule of investments as of December 31, 1998, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the three years in the period then ended,
the eleven month period ended December 31, 1995, the year ended January 31,
1995, and the period May 5, 1993 (commencement of operations) through January
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Value Fund, as of December 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended, the eleven month period ended December 31, 1995, the
year ended January 31, 1995 and the period May 5, 1993 (commencement of
operations) through January 31, 1994 in conformity with generally accepted
accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
February 3, 1999
AIM V.I. VALUE FUND
148
<PAGE>
<TABLE>
<S> <C> <C> <C>
DIRECTORS, OFFICERS, BOARD OF DIRECTORS OFFICERS OFFICE OF THE FUND
AND OTHER SERVICE
PROVIDERS OF AIM Charles T. Bauer Charles T. Bauer 11 Greenway Plaza
VARIABLE INSURANCE Chairman Chairman Suite 100
FUNDS, INC. A I M Management Group Inc. Houston, TX 77046
Robert H. Graham (800) 347-1919
Bruce L. Crockett President
Director INVESTMENT ADVISOR
ACE Limited; John J. Arthur
Formerly Director, President, and Senior Vice President and A I M Advisors, Inc.
Chief Executive Officer Treasurer 11 Greenway Plaza
COMSAT Corporation Suite 100
Carol F. Relihan Houston, TX 77046
Owen Daly II Senior Vice President and
Director Secretary TRANSFER AGENT AND CUSTODIAN
Cortland Trust Inc.
Gary T. Crum State Street Bank and Trust Company
Edward K. Dunn Jr. Senior Vice President 225 Franklin Street
Chairman, Mercantile Mortgage Corp.; Boston, MA 02110
Formerly Vice Chairman and President, Dana R. Sutton
Mercantile-Safe Deposit & Trust Co.; and Vice President and COUNSEL TO THE FUNDS
President, Mercantile Bankshares Assistant Treasurer
Freedman, Levy, Kroll &
Jack Fields Robert G. Alley Simonds
Chief Executive Officer Vice President 1050 Conn. Avenue, N.W.
Texana Global Inc.; Washington, D.C. 20036
Formerly, Member of the Stuart W. Coco
U.S. House of Representatives Vice President COUNSEL TO THE DIRECTORS
Carl Frischling Melville B. Cox Kramer, Levin, Naftalis & Frankel
Partner Vice President 919 Third Avenue
Kramer, Levin, Naftalis & Frankel New York, NY 10022
Karen Dunn Kelley
Robert H. Graham Vice President DISTRIBUTOR
President and Chief Executive Officer
A I M Management Group Inc. Jonathan C. Schoolar A I M Distributors, Inc.
Vice President 11 Greenway Plaza
Lewis F. Pennock Suite 100
Attorney Renee A. Friedli Houston, TX 77046
Assistant Secretary
Ian W. Robinson INDEPENDENT AUDITORS
Consultant; Formerly, Executive P. Michelle Grace
Vice President and Assistant Secretary Tait, Weller & Baker
Chief Financial Officer 8 Penn Center Plaza
Bell Atlantic Management Jeffery H. Kupor Suite 800
Services, Inc. Assistant Secretary Philadelphia, PA 19103
Louis S. Sklar Nancy L. Martin
Executive Vice President Assistant Secretary
Hines Interests
Limited Partnership Ofelia M. Mayo
Assistant Secretary
Lisa A. Moss
Assistant Secretary
Kathleen J. Pflueger
Assistant Secretary
Samuel D. Sirko
Assistant Secretary
Stephen I. Winer
Assistant Secretary
Mary J. Benson
Assistant Treasurer
</TABLE>
