ANNUAL REPORT
December 31, 1996
INVESCO
VARIABLE
INVESTMENT
FUNDS,
INC.
VIF-Industrial Income Portfolio
VIF-Total Return Portfolio
VIF-High Yield Portfolio
VIF-Utilities Portfolio
<PAGE>
Economic Overview January 1997
Overheating -- or headed into a recession? That's the question analysts have
posed for months about the U.S. economy. During the third quarter of 1996,
growth moderated to a "normal/dull" level of 2.2%. Representing a slowdown from
the second quarter's relatively torrid pace of 4.7%, the current level of
economic expansion should be moderate enough to stave off inflation fears. The
rate of increase in wages, benefits, and prices for consumer and industrial
goods has not accelerated over the past 12 months; the Consumer Price Index will
likely end 1996 up at an annualized rate of about 3.0% -- in line with the
historical average.
The moderate inflation level represents a positive factor for the economy.
At the same time, though, the longevity of the current expansion -- over six
years -- remains a cause for concern; the post-World War II average is only four
and a half years. Negative growth hasn't been experienced since the first
quarter of 1993. If the growth rate again approaches 5%, many economists expect
the Federal Reserve Board to launch a preemptive strike against inflation, with
the concomitant danger of cutting the expansion short.
Last summer, concern about the Fed and the national elections caused a
pullback in equity markets. Since then, with the political status quo generally
maintained vis-a-vis the president and Congress, and the economy slowing on its
own, the S&P 500 resumed its upward hike.
In comparison, investors in fixed-income securities experienced a bumpier
ride in 1996. The second half of the year was smoother, as inflation fears waned
and interest rates stabilized.
1997 is a post-presidential election year, when the stock market typically
drops, and volatility may well continue. Currently, valuations for many
individual stocks appear high. Moderate action from the Fed over the winter --
an increase of 0.25% in short-term interest rates, for example -- might be
interpreted by investors in a positive light, with a subsequent calming
influence on price swings. Conversely, heavy-handed measures could be viewed as
likely to trigger a recession, with negative consequences for corporate earnings
estimates -- and stock prices; securities markets around the globe immediately
dropped following Fed Chairman Alan Greenspan's December remark that current
stock prices may reflect "irrational exuberance."
INVESCO Variable Investment
Funds, Inc.
The line graphs on the following pages illustrate, for the period from
inception through 12/31/96, the value of a $10,000 investment in each of the
INVESCO Variable Investment Funds, plus reinvested dividends and capital gain
distributions. The charts and other total return figures cited reflect the
funds' operating expenses, but the indexes do not have expenses, which would, of
course, have lowered their performance. (Past performance is not a guarantee of
future results.)(1),(2)
<PAGE>
VIF--Industrial Income Fund
Industrial Income Fund
Average Annual Total Return
as of 12/31/96(1)
1 year 22.28%
-----------------------------------------
Since Inception (8/94) 21.46%
-----------------------------------------
For the one-year period ended 12/31/96, VIF--Industrial Income Fund
achieved a total return of 22.28%. During the same period, the S&P 500 had a
total return of 22.90%, and the Lehman Government/Corporate Bond index had a
total return of 2.90%. (Of course, past performance is not a guarantee of future
results.)(1),(2)
Over the past several months, the fund has gradually shifted its mix of
holdings. In particular, we are placing less emphasis on fixed-income
investments in favor of a higher proportion of equity securities, primarily
common stocks. As of 12/31/95, debt obligations represented approximately 26% of
the portfolio; 12 months later, this weighting had been decreased to about 18%.
This strategic shift plus a disciplined stock selection process enabled us to
nearly match the returns of the broad equity market in 1996.
We have also modified our holdings among the different market sectors.
Reflecting a change in the overall economic environment, we have decreased our
emphasis on such areas as consumer cyclicals. Instead, we are currently favoring
companies in strong positions to continue earnings growth despite a slower
economy. Thus we added to our positions in the consumer staples industries.
Newer holdings in this area include Procter & Gamble, SmithKline Beecham and
Kellogg Co.
Graph: VIF-Industrial Income Fund Total Return
vs. S&P 500 and Lehman Government/Corporate Bond Index
This line graph illustrates the value of a $10,000 investment in INVESCO
VIF-Industrial Income Fund, plus reinvested dividends and capital gain
distributions, for the period 8/10/94 (inception) through 12/31/96.
As economic growth moderates, stock selection becomes ever more critical to
long-term investment potential. We will continue to search out stocks offering
earnings growth potential and current income based on a company's strong
fundamentals, including leading market positions, high quality of management,
strong balance sheets, and a good level of liquidity.
On the fixed-income side, we are always extremely conscious of value, and
seek to manage the portfolio with an eye towards interest rate risk management.
Throughout 1996, we gradually decreased the average duration of the bond
holdings, and anticipate maintaining a range of four to six years. (Shorter
durations generally decrease market risk.)
Over half of the portfolio's bonds are rated AAA/Government. We do include
some lower-rated corporate bonds, which serve to enhance the fund's income flow.
These holdings are of course carefully monitored to help ensure against any
surprises.
<PAGE>
Fund Management
VIF--Industrial Income Fund is co-managed by two INVESCO senior vice
presidents. Charles P. Mayer is responsible for the equity side of the
portfolio. An industry veteran with 26 years of professional experience, he
earned an MBA from St. John's University and a BA from St. Peter's College.
Previously, Charlie was with Westinghouse Pension.
Charlie is assisted by Albert M. Grossi. Now a vice president of INVESCO
Trust Company, he began his investment career in 1974, and previously was with
Westinghouse Pension Investments Corp., E.F. Hutton, and Shearson American
Express. Al earned both his MBA and BA from Rutgers University.
Donovan J. "Jerry" Paul serves as co-portfolio manager of the fund,
concentrating on fixed-income securities. Jerry began his investment career in
1976; before joining INVESCO, he worked for Stein, Roe & Farnham Inc. as well as
Quixote Investment Management. He earned an MBA from the University of Northern
Iowa, and a BBA from the University of Iowa. He is a Chartered Financial Analyst
and Certified Public Accountant.
VIF--Total Return Fund
For the one-year period ended 12/31/96, VIF--Total Return Fund achieved a
total return of 12.18%. During the same period, the S&P 500 had a total return
of 22.90%, and the Lehman Government/Corporate Bond index had a total return of
2.90%. (Of course, past performance is not a guarantee of future
results.)(1),(2) The fund allocates investments between stocks and bonds.
Generally, about 30% of assets are invested in stocks, 30% in fixed-income
securities, and the remaining 40% is focused on the asset class expected to
produce superior returns. Holdings are gradually shifted according to changes in
the stock and bond markets. As of 12/31/96, about 32% of assets were in
government and corporate bonds, while 61% was focused on common stocks.
Total Return Fund
Average Annual Total Return
as of 12/31/96(1)
1 year 12.18%
-----------------------------------------
Since Inception (6/94) 13.96%
-----------------------------------------
Given the underperformance of the bond market relative to stocks in 1996,
this strategy proved somewhat of a disadvantage last year. Over the long-term,
however, we believe our asset allocation model may lead to superior returns, as
bond holdings may cushion the fund in the event of a correction or bear market
in stocks.
Graph: VIF-Total Return Fund Total Return
vs. S&P 500 and Lehman Government/Corporate Bond Index
This line graph illustrates the value of a $10,000 investment in INVESCO
VIF- Total Return Fund, plus reinvested dividends and capital gain
distributions, for the period 6/2/94 (inception) through 12/31/96.
Equity holdings are selected using a "bottom up" value process which
emphasizes stocks with lower-than-market price/earnings, price/book, and
<PAGE>
debt/equity ratios; in particular, we analyze historical profitability relative
to current price. Over the past few months, we have not made any major changes
in our sector weightings. The fund continues to be well-diversified among large-
and medium- sized quality companies; newer holdings include Great Lakes Chemical
(chemicals), SuperValu Inc (foodstores-wholesale), Ohio Casualty (insurance),
and Westvaco Corp (paper & paper products).
Government and corporate bonds are evaluated based on two key criteria:
valuation levels and analysis of Federal Reserve Board policy. Additionally, we
consider the relative attractiveness of the corporate versus government and
government agency markets, taking into consideration returns and relative risk
levels.
Fund Management
VIF--Total Return Fund is managed by Edward C. Mitchell, president of
INVESCO Capital Management, Inc. He earned his MBA at the University of Colorado
and a BA from the University of Virginia. Ed began his investment career in
1969.
He is assisted by David S. Griffin, who began his investment career in 1982.
David holds an MBA from the College of William & Mary, as well as a BA from Ohio
Wesleyan University. He is a Chartered Financial Analyst.
VIF--High Yield Fund
High Yield Fund
Average Annual Total Return
as of 12/31/96(1)
1 year 16.59%
-----------------------------------------
Since Inception (6/94) 13.96%
-----------------------------------------
For the one-year period ended 12/31/96, VIF--High Yield Fund achieved a
total return of 16.59%, easily outperforming the Merrill Lynch High Yield Index,
which over the same period had a total return of 11.07%. While fixed-income
investments as a group underperformed the broad stock market, lower rated bonds
did relatively better than other debt obligations during this difficult year.
(Of course, past performance is not a guarantee of future results.)(1),(2)
While the U.S. economy is not exactly roaring, there are no indications that
it will decline into a recession any time soon. As a result, the economic
environment bodes well for corporate creditworthiness; we are on the lookout for
certain firms to experience improving fundamentals leading to credit upgrades,
and potential price appreciation. Continuing credit risk analysis is thus a key
facet of our overall strategy, with a focus on "bottom up" analysis.
Approximately two-thirds of the portfolio is invested in bonds rated B, compared
to about 55% one year ago.
Graph: VIF-High Yield Fund Total Return
vs. Merrill Lynch High Yield Master Index
This line graph illustrates the value of a $10,000 investment in INVESCO
VIF- High Yield Fund, plus reinvested dividends and capital gain
distributions, for the period 5/27/94 (inception) through 12/31/96.
<PAGE>
The fund's holdings are diversified across a wide variety of industries,
with a particular emphasis on consumer cyclical and utilities companies. Areas
of special interest to us include cable television, broadcasting, and
communications, where corporate merger and acquisition activity may benefit
portfolio holdings in the future.
Duration is a measure of market risk -- generally, the lower the duration,
the lower the risk. We anticipate maintaining a range of four to six years, a
moderately defensive posture.
Fund Management
VIF--High Yield Fund is managed by Donovan J. "Jerry" Paul. Jerry began his
investment career in 1976; before joining INVESCO, he worked for Stein, Roe &
Farnham Inc. as well as Quixote Investment Management. He earned an MBA from the
University of Northern Iowa, and a BBA from the University of Iowa. He is a
Chartered Financial Analyst and Certified Public Accountant.
VIF--Utilities Fund
For the one-year period ended 12/31/96, VIF--Utilities Fund achieved a total
return of 12.76%. During the same period, the Dow Jones Utilities Index had a
total return of 3.16%. Utilities stocks suffered from market pressure similar to
that endured by the broad fixed-income market in 1996; however, through careful
stock selection and active management, the fund strongly outperformed the
utilities index. (Of course, past performance is not a guarantee of future
results.)(1),(2)
We tend to focus the fund on companies with relatively good earnings growth
prospects in defensible market positions. For this reason, we underweighted
telecommunications over the past 12 months. These stocks will be strongly
affected by changes in the regulatory environment, and we are keeping a
"wait-and-see" attitude towards this area until the outlook becomes clearer. In
the past six months, we closed positions in firms which had either reached our
target price or which we believed had a weaker earnings outlook. A few new names
were added to this area, including Deutsche Telekom AG and NEXTEL
Communications.
We have increased our exposure to the natural gas industry. This reflects a
cyclical shift, as natural gas reserves have been depleted to an extent over
1996, and usage over the winter may be anticipated to remain relatively strong.
Since last June, we have taken a position in PanEnergy Corp, an oil &
gas-related company, as well as three production/pipeline companies -- NGC Corp,
TransCanada PipeLines, and Williams Cos.
Utilities Fund
Average Annual Total Return
as of 12/31/96(1)
1 year 12.76%
-----------------------------------------
Since Inception (1/95) 10.90%
-----------------------------------------
Electric utilities have become an even more important focus for us over the
past year; they represent about 32% of holdings, compared to about 25% six
months ago. We are seeking to emphasize high quality, low cost companies with
strong competitive positions. Positions opened over the past six months include
TNP Enterprises, GPU Inc, KU Energy, and Southern Co.
<PAGE>
Graph: VIF-Utilities Fund Total Return
vs. Dow Jones Utilities Index
This line graph illustrates the value of a $10,000 investment in INVESCO
VIF- Utilities Fund, plus reinvested dividends and capital gain
distributions, for the period 1/1/95 (inception) through 12/31/96.
Fund Management
VIF--Utilities Fund has been managed by Jeffrey Morris since 1996. He is a
Chartered Financial Analyst, and earned his BSBA from Colorado State University.
Jeff joined INVESCO in 1991.
(1) Total return assumes reinvestment of dividends and capital gain
distributions for the periods indicated. Investment return and principal value
will fluctuate so that, when redeemed, an investor's shares may be worth more or
less than when purchased.
(2) The S&P 500 is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The Dow Jones Utilities Index is an
unmanaged index of utilities stocks. The Lehman Government/Corporate Bond and
Merrill Lynch High Yield Index are unmanaged indexes indicative of the broad
fixed-income and high yield markets, respectively.
<PAGE>
<TABLE>
<CAPTION>
INVESCO Variable Investment Funds, Inc.
Statement of Investment Securities
December 31, 1996
- ---------------------------------------------------------------------------------------------
Country Shares, Units
Code if or Principal
Description Non US Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH YIELD Portfolio
FIXED INCOME SECURITIES 84.47%
Corporate Bonds 81.26%
AEROSPACE & DEFENSE 0.81%
Howmet Corp, Sr Sub Notes, 10.000%, 12/1/2003 $100,000 $109,000
------------
AUTOMOBILE RELATED 0.63%
Harvard Industries, Sr Notes, 11.125%, 8/1/2005 100,000 83,750
------------
BROADCASTING 8.91%
Allbritton Communications, Sr Sub Deb
11.500%, 8/15/2004 100,000 105,500
Series B, 9.750%, 11/30/2007 200,000 194,500
American Radio Systems, Gtd
Sr Sub Notes, 9.000%, 2/1/2006 250,000 246,250
Benedek Communications, Sr Sub
Discount Step-Up Notes
Zero Coupon^^, 5/15/2006 250,000 143,750
Chancellor Broadcasting, Sr Sub
Notes, 9.375%, 10/1/2004 150,000 151,500
Granite Broadcasting, Sr Sub Notes,
9.375%, 12/1/2005 100,000 96,750
Jacor Communications, Gtd Sr Sub
Notes, 9.750%, 12/15/2006 250,000 255,313
------------
1,193,563
------------
BUILDING & CONSTRUCTION RELATED 1.55%
Ryland Group, Sr Notes,
10.500%, 7/1/2006 200,000 208,000
------------
CABLE TELEVISION 6.21%
Kabelmedia Holding GmbH,
Sr Discount Step-Up Notes
Zero Coupon^^, 8/1/2006 GM 100,000 55,500
Marcus Cable LP/Marcus Cable
Capital III, Sr Deb
11.875%, 10/1/2005 100,000 107,250
TV Filme, Sr Notes^,
12.875%, 12/15/2004 BR 200,000 200,750
UIH Australia/Pacific, Sr Discount
Step-Up Notes, Series B Zero
Coupon^^, 5/15/2006 AS 450,000 235,125
<PAGE>
United Interational Holdings,
Sr Secured Discount Notes
Zero Coupon, 11/15/1999 100,000 71,000
Videotron Holdings PLC, Sr Discount
Step-Up Notes Zero Coupon^^,
8/15/2005 UK 200,000 162,500
------------
832,125
------------
CHEMICALS 2.83%
Freedom Chemical, Sr Sub Notes^,
10.625%, 10/15/2006 250,000 262,500
Sterling Chemicals Holdings, Sr
Secured Discount Step-Up Notes
Zero Coupon^^, 8/15/2008 200,000 117,000
------------
379,500
------------
DIVERSIFIED COMPANIES 1.10%
Jordan Industries, Sr Notes,
10.375%, 8/1/2003 150,000 147,750
------------
ELECTRICAL EQUIPMENT 0.77%
Motors & Gears, Sr Notes, Series A^,
10.750%, 11/15/2006 100,000 103,500
------------
ELECTRONICS 1.96%
Celestica International, Gtd Sr
Sub Notes^, 10.500%, 12/31/2006 CA 250,000 262,500
------------
FOOD PRODUCTS & BEVERAGES 2.72%
Gorges/Quick-to-Fix Foods,
Sr Sub Notes^, 11.500%, 12/1/2006 100,000 103,625
International Home Foods, Sr Sub
Notes^, 10.375%, 11/1/2006 250,000 260,000
------------
363,625
------------
GAMING 6.67%
Casino America, Gtd Sr Secured
Notes, 12.500%, 8/1/2003 100,000 94,875
Players International, Sr Notes,
10.875%, 4/15/2005 100,000 99,375
Station Casinos, Sr Sub Notes,
9.625%, 6/1/2003 250,000 247,500
Trump Hotels & Casino Resorts
Holdings LP/Trump Hotels & Casino
Resorts Funding, Sr Secured Notes,
15.500%, 6/15/2005 200,000 229,000
Trump's Castle Funding, Mortgage
Notes, 11.750%, 11/15/2003 250,000 221,875
------------
892,625
------------
<PAGE>
HEALTH CARE RELATED 0.79%
Quest Diagnostics, Gtd Sr Sub
Notes, 10.750%, 12/15/2006 100,000 105,000
------------
INDUSTRIAL 1.91%
Rayovac Corp, Sr Sub Notes^,
10.250%, 11/1/2006 250,000 256,250
------------
MANUFACTURING 3.85%
Goss Graphic Systems, Sr Sub
Notes, 12.000%, 10/15/2006 250,000 257,500
Newport News Shipbuilding, Sr Sub
Notes^, 9.250%, 12/1/2006 250,000 257,812
------------
515,312
------------
OIL & GAS RELATED 6.37%
Clark (R & M) Holdings, Sr
Secured Notes, Series A
Zero Coupon, 2/15/2000 100,000 71,750
HS Resources, Sr Sub Notes^,
9.250%, 11/15/2006 250,000 255,625
National Energy Group, Sr Notes^,
10.750%, 11/1/2006 250,000 262,500
Parker Drilling, Gtd Sr Notes^,
9.750%, 11/15/2006 250,000 263,125
------------
853,000
------------
PAPER & PAPER PRODUCTS 2.14%
Riverwood International, Gtd Sr
Notes, 10.250%, 4/1/2006 100,000 98,500
Tembec Finance, Gtd Sr Notes,
9.875%, 9/30/2005 CA 200,000 188,500
------------
287,000
------------
POLLUTION CONTROL EQUIPMENT &
SERVICES 1.96%
Allied Waste North America, Sr
Sub Notes^, 10.250%, 12/1/2006 250,000 262,188
------------
PUBLISHING 2.45%
Affiliated Newspaper Investments,
Sr Discount Step-Up Deb
Zero Coupon^^, 7/1/2006 400,000 328,000
------------
RECREATION PRODUCTS & SERVICES 2.24%
LodgeNet Entertainment, Sr Notes^,
10.250%, 12/15/2006 300,000 300,000
------------
RETAIL 0.72%
Food 4 Less Holdings, Sr Sub Deb**,
13.625%, 6/15/2007 100,000 96,857
------------
<PAGE>
TELECOMMUNICATIONS 21.21%
Brooks Fiber Properties, Sr Discount
Step-Up Notes^ Zero Coupon^^,
11/1/2006 250,000 159,375
Centennial Cellular, Sr Notes,
8.875%, 11/1/2001 250,000 243,750
Comcast Cellular, Sr Participating
Notes, Series B Zero Coupon,
3/5/2000 100,000 72,000
CommNet Cellular
Sr Sub Discount Step-Up Notes,
Zero Coupon^^, 9/1/2003 200,000 182,000
Sub Notes, 11.250%, 7/1/2005 100,000 106,000
Dial Call Communications, Sr Discount
Step-Up Notes Zero Coupon^^,
4/15/2004 300,000 213,750
GST USA, Gtd Sr Discount
Exchangeable Step-Up Notes
Zero Coupon^^, 12/15/2005 100,000 61,000
MDC Communications, Sr Sub Notes,
10.500%, 12/1/2006 CA 100,000 103,125
Microcell Telecommunications, Sr
Discount Step-Up Notes, Series B
Zero Coupon^^, 6/1/2006 500,000 276,250
NEXTLINK Communications LLC, Sr
Notes, 12.500%, 4/15/2006 250,000 268,125
OmniPoint Corp, Sr Notes, Series A^,
11.625%, 8/15/2006 250,000 260,000
PanAmSat LP/PanAmSat Capital, Sr Sub
Discount Step-Up Notes
Zero Coupon^^, 8/1/2003 200,000 185,500
PhoneTel Technologies, Sr Notes,
12.000%, 12/15/2006 100,000 103,500
PriCellular Wireless
Sr Notes^, 10.750%, 11/1/2004 250,000 259,375
Sr Sub Discount Step-Up Notes,
Zero Coupon^^, 10/1/2003 100,000 85,500
Western Wireless, Sr Sub Notes,
10.500%, 6/1/2006 250,000 261,562
------------
2,840,812
------------
TEXTILES & APPAREL MANUFACTURERS 0.72%
Reeves Industries, Sr Notes,
11.000%, 7/15/2002 100,000 96,000
------------
TRANSPORTATION 1.91%
Continental Airlines, Sr Notes^,
9.500%, 12/15/2001 250,000 255,000
------------
UTILITIES 0.83%
Niagara Mohawk Power, Secured
Facil Bonds, 8.770%, 1/1/2018 114,000 111,229
------------
<PAGE>
TOTAL CORPORATE BONDS
(Cost $10,595,298) 10,882,586
------------
Asset-Backed Securities 1.25%
FINANCE RELATED 1.25%
DR Structured Finance, Secured Lease
Trust Pass-Through Certificates,
Series 1994, Class A-2, 8.375%,
8/15/2015 (Cost $165,210) 200,000 168,000
------------
Foreign Government Obligations 1.96%
Argentina Republic, Global Bonds,
11.000%, 10/9/2006
(Cost $248,957) AR 250,000 261,875
------------
TOTAL FIXED INCOME SECURITIES
(Cost $11,009,465) 11,312,461
------------
PREFERRED STOCKS & WARRANTS 6.57%
BROADCASTING 2.55%
Chancellor Radio Broadcasting, Sr Cum
Exchangeable Pfd Series A, 12.250%~ 1,000 110,000
Paxson Communications, Exchangeable
Pfd, 12.500%~ 250 232,500
------------
342,500
------------
CABLE TELEVISION 1.11%
Cablevision Systems, Cum Exchangeable
Pfd, Series H, 11.750%~ 1,589 148,571
------------
HEALTH CARE RELATED 1.90%
Fresenius Medical Care Capital Trust,
Gtd Trust Pfd, 9.000%~ 250 254,375
------------
TELECOMMUNICATIONS 1.01%
IntelCom Group USA, Mandatory
Exchangeable Pfd~ 100 107,000
Microcell Telecommunications
Conditional Warrants^ (Exp 2006)* 2,000 14,000
Warrants^ (Exp 2006)* 2,000 14,000
------------
135,000
------------
TOTAL PREFERRED STOCKS & WARRANTS
(Cost $870,562) 880,446
------------
OTHER SECURITIES 4.41%
CABLE TELEVISION 1.10%
United International Holdings, Units
(Each unit consists of one $1,000 face
amount Sr Secured Discount Note,
Zero Coupon, 11/15/1999 and 1 wrnt to
purchase 4.535 shrs
of cmn stock) 200 147,000
------------
<PAGE>
RETAIL 0.37%
InterAct Systems, Units^ (Each unit consists
of one $1,000 face amount Sr Discount
Step-Up Note, 14.000%, 8/1/2003 and 1 wrnt
to purchase 1 shr of cmn stock) 100 50,000
------------
TELECOMMUNICATIONS 2.94%
COLT Telecom Group PLC, Units (Each unit
consists of one $1,000 face amount Sr
Discount Step-Up Note, Zero Coupon^^,
12/15/2006) UK 250 150,000
International Wireless Communications
Holdings, Units^ (Each unit consists
of one $1,000 face amount Sr Secured
Discount Note Zero Coupon, 8/15/2001
and 1 wrnt to purchase 1 shr of
cmn stock) 200 109,000
Occidente y Caribe Celular SA, Units^
(Each unit consists of one $1,000 face
amount Sr Discount Step-Up Note, Zero
Coupon^^ 3/15/2004 and 4 wrnts to
purchase 5.709 shrs of cmn stock
each) CO 225 135,000
------------
394,000
------------
TOTAL OTHER SECURITIES
(Cost $587,407) 591,000
------------
SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS 4.55%
Repurchase Agreement with State Street Bank
& Trust Co dated 12/31/1996 due 1/2/1997
at 6.500%, repurchased at $609,220
(Collateralized by US Treasury
Bonds due 11/15/2016 at 7.500% value
$623,825) (Cost $609,000) 609,000 609,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $13,076,434#) 13,392,907
============
INDUSTRIAL INCOME Portfolio
COMMON STOCKS 73.99%
AEROSPACE & DEFENSE 3.29%
General Motors Class H 3,000 168,750
Northrop Grumman 3,000 248,250
Sundstrand Corp 7,000 297,500
------------
714,500
------------
<PAGE>
AUTOMOBILE RELATED 0.60%
Chrysler Corp 2,000 66,000
Ford Motor 2,000 63,750
------------
129,750
------------
BANKING 3.40%
BankAmerica Corp 2,000 199,500
CoreStates Financial 8,000 415,000
First Chicago NBD 2,267 121,851
------------
736,351
------------
BIOTECHNOLOGY 1.69%
Biogen Inc* 3,000 116,250
Gilead Sciences* 10,000 250,000
------------
366,250
------------
BROADCASTING 0.56%
Belo (A H) Corp Class A 3,500 122,062
------------
BUILDING & CONSTRUCTION RELATED 0.87%
Fluor Corp 3,000 188,250
------------
CHEMICALS 3.63%
Agrium Inc 15,000 206,250
Air Products & Chemicals 5,000 345,625
ARCO Chemical 2,000 98,000
Lawter International 5,000 63,125
Olin Corp 2,000 75,250
------------
788,250
------------
CLEANING PRODUCTS 1.98%
Procter & Gamble 4,000 430,000
------------
COMPUTER RELATED 2.68%
Hewlett-Packard Co 3,000 150,750
International Business Machines 1,000 151,000
SABRE Group Holdings Class A* 10,000 278,750
------------
580,500
------------
COSMETICS & PERSONAL CARE 1.42%
Nu Skin Asia Pacific Class A* 10,000 308,750
------------
DIVERSIFIED COMPANIES 1.43%
General Electric 2,000 197,750
Kansas City Southern Industries 2,500 112,500
------------
310,250
------------
<PAGE>
ELECTRICAL EQUIPMENT 1.79%
Emerson Electric 3,000 290,250
Honeywell Inc 1,500 98,625
------------
388,875
------------
ELECTRONICS 2.09%
Intel Corp 2,000 261,875
Texas Instruments 3,000 191,250
------------
453,125
------------
FINANCE RELATED 2.54%
Associates First Capital Class A 8,000 353,000
Dean Witter Discover 3,000 198,750
------------
551,750
------------
FOOD PRODUCTS & BEVERAGES 4.86%
Anheuser-Busch Cos 8,000 320,000
General Mills 2,000 126,750
Heinz (H J) Co 6,725 240,419
Kellogg Co 5,000 328,125
Quaker Oats 1,000 38,125
------------
1,053,419
------------
HOTELS 0.72%
Hilton Hotels 6,000 156,750
------------
INSURANCE 5.41%
Allmerica Financial 6,000 201,000
American States Financial 10,000 265,000
Ohio Casualty 5,000 177,500
St Paul Cos 3,000 175,875
Travelers/Aetna Property Casualty Class A 10,000 353,750
------------
1,173,125
------------
MANUFACTURING 1.24%
AlliedSignal Inc 4,000 268,000
------------
MEDICAL EQUIPMENT & SUPPLIES 0.80%
Becton Dickinson & Co 4,000 173,500
------------
MEDICAL RELATED - DRUGS 5.97%
Glaxo Wellcome PLC Sponsored ADR 10,000 317,500
Merck & Co 3,000 237,750
Novo-Nordisk A/S ADR 2,000 93,500
SmithKline Beecham PLC ADR
Representing Ord A Shrs 4,000 272,000
Warner-Lambert Co 5,000 375,000
------------
1,295,750
------------
<PAGE>
MINING 0.41%
Newmont Mining 2,000 89,500
------------
OIL & GAS RELATED 5.33%
Amoco Corp 1,000 80,500
Atlantic Richfield 700 92,750
Dresser Industries 4,000 124,000
Exxon Corp 1,000 98,000
Schlumberger Ltd 1,000 99,875
Sonat Inc 3,000 154,500
USX-Marathon Group 10,000 238,750
Union Pacific Resources Group 5,000 146,250
Unocal Corp 3,000 121,875
------------
1,156,500
------------
PAPER & PAPER PRODUCTS 2.69%
Albany International Class A 5,000 115,625
Champion International 2,000 86,500
Kimberly-Clark Corp 4,000 381,000
------------
583,125
------------
PHOTOGRAPHY SERVICES 0.40%
Polaroid Corp 2,000 87,000
------------
PUBLISHING 0.77%
Donnelley (R R) & Sons 2,000 62,750
News Corp Ltd ADR 5,000 104,375
------------
167,125
------------
REAL ESTATE RELATED 0.80%
Patriot American Hospitality 4,000 172,500
------------
RETAIL 3.88%
Dayton Hudson 5,000 196,250
May Department Stores 3,000 140,250
Penney (J C) Co 4,000 195,000
Toys "R" Us* 5,000 150,000
Wal-Mart Stores 7,000 160,125
------------
841,625
------------
TELECOMMUNICATIONS 4.92%
Deutsche Telekom AG Sponsored ADR* 34,000 692,750
Frontier Corp 5,000 113,125
Lucent Technologies 3,000 138,750
Motorola Inc 2,000 122,750
------------
1,067,375
------------
<PAGE>
TRANSPORTATION 0.66%
Conrail Inc 1,148 114,370
KLM Royal Dutch Airlines New York
Registered Shrs 1,000 27,875
------------
142,245
------------
UTILITIES 7.16%
Ameritech Corp 3,000 181,875
Bell Atlantic 3,000 194,250
BellSouth Corp 4,000 161,500
GTE Corp 3,500 159,250
IES Industries 10,000 298,750
KN Energy 5,000 196,250
NYNEX Corp 2,000 96,250
SBC Communications 3,000 155,250
US WEST Communications Group 3,400 109,650
------------
1,553,025
------------
TOTAL COMMON STOCKS
(Cost $14,004,495) 16,049,227
------------
PREFERRED STOCKS 0.24%
MINING 0.24%
Amax Gold, $3.75, Conv Pfd, Series B
(Cost $48,795) 1,000 52,625
------------
FIXED INCOME SECURITIES 17.68%
US Government Obligations 3.48%
US Treasury Notes, 6.500%, 5/15/2005
(Cost $782,609) 750,000 755,390
US Government Agency Obligations 6.68%
Federal Home Loan Mortgage, Gold,
Participation Certificates
6.500%, 8/1/2011
(Cost $1,438,515) 1,474,927 1,449,232
------------
Corporate Bonds 7.52%
BROADCASTING 0.93%
Allbritton Communications, Sr Sub Deb,
Series B 9.750%, 11/30/2007 100,000 97,250
EZ Communications, Gtd Sr Sub Notes,
9.750%, 12/1/2005 100,000 104,250
------------
201,500
------------
<PAGE>
BUILDING & CONSTRUCTION RELATED 0.93%
USG Corp, Deb, 8.750%, 3/1/2017 200,000 202,000
------------
CABLE TELEVISION 1.46%
Continental Cablevision, Sr Sub Deb,
11.000%, 6/1/2007 200,000 228,485
Videotron Holdings PLC, Sr Discount
Notes, 11.125%, 7/1/2004 100,000 87,750
------------
316,235
------------
FINANCE RELATED 0.46%
General Motors Acceptance, Medium-
Term Notes, 6.700%, 4/25/2001 100,000 100,472
------------
GAMING 0.41%
Trump's Castle Funding, Mortgage
Notes, 11.750%, 11/15/2003 100,000 88,750
------------
HEALTH CARE RELATED 0.51%
Tenet Healthcare, Sr Sub Notes,
10.125%, 3/1/2005 100,000 110,500
------------
MOTION PICTURES & TELEVISION 0.44%
Viacom Inc, Sub Deb, 8.000%, 7/7/2006 100,000 95,682
------------
OIL & GAS RELATED 0.48%
Clark Oil & Refining, Sr Notes,
10.500%, 12/1/2001 100,000 103,500
------------
RECREATION PRODUCTS & SERVICES 0.24%
United Artists Theatre Circuit,
Sr Secured Notes, Series B
11.500%, 5/1/2002 50,000 52,625
------------
TELECOMMUNICATIONS 0.43%
PanAmSat LP/PanAmSat Capital,
Sr Sub Discount Step-Up Notes
Zero Coupon^^, 8/1/2003 100,000 92,750
------------
TRANSPORTATION 0.23%
Teekay Shipping, Gtd 1st Pfd Ship
Mortgage Notes, 8.320%, 2/1/2008 50,000 49,813
------------
UTILITIES 1.00%
DQU-II Funding, Collateral Lease
Bonds, 8.700%, 6/1/2016 200,000 216,164
------------
TOTAL CORPORATE BONDS
(Cost $1,628,768) 1,629,991
------------
TOTAL FIXED INCOME SECURITIES
(Cost $3,849,892) 3,834,613
------------
<PAGE>
SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS 8.09%
Repurchase Agreement with State Street Bank
& Trust Co dated 12/31/1996 due 1/2/1997
at 6.500%, repurchased at $1,754,633
(Collateralized by US Treasury
Bonds due 11/15/2016 at 7.500%
value $1,794,186) (Cost $1,754,000) 1,754,000 1,754,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $19,657,182#) 21,690,465
============
TOTAL RETURN Portfolio
COMMON STOCKS 60.97%
AEROSPACE & DEFENSE 2.58%
Boeing Co 1,100 117,012
Lockheed Martin 1,300 118,950
Raytheon Co 2,200 105,875
------------
341,837
------------
AGRICULTURAL 1.02%
Archer-Daniels-Midland Co 6,145 135,190
------------
AUTOMOBILE RELATED 1.20%
Ford Motor 5,000 159,375
------------
BANKING 5.51%
Comerica Inc 1,900 99,513
First Chicago NBD 2,600 139,750
First of America Bank 2,200 132,275
First Union 1,500 111,000
State Street Boston 2,100 135,450
Wachovia Corp 2,000 113,000
------------
730,988
------------
BUSINESS & COMMERCIAL SERVICES 0.47%
Cognizant Corp* 1,900 62,700
------------
CHEMICALS 2.07%
Akzo Nobel NV Sponsored ADR 1,600 108,000
Great Lakes Chemical 1,900 88,825
Imperial Chemical Industries PLC ADR 1,500 78,000
------------
274,825
------------
COMPUTER RELATED 2.07%
Compaq Computer* 2,000 148,500
Hewlett-Packard Co 2,500 125,625
------------
274,125
------------
<PAGE>
DIVERSIFIED COMPANIES 5.69%
du Pont (E I) de Nemours 1,400 132,125
General Electric 1,300 128,537
Hanson PLC Sponsored ADR 9,000 60,750
Minnesota Mining & Manufacturing 1,600 132,600
National Service Industries 5,000 186,875
Textron Inc 1,200 113,100
------------
753,987
------------
FINANCE RELATED 1.58%
Deluxe Corp 5,000 163,750
Dun & Bradstreet 1,900 45,125
------------
208,875
------------
FOOD PRODUCTS & BEVERAGES 5.23%
Anheuser-Busch Cos 3,000 120,000
General Mills 1,700 107,737
Heinz (H J) Co 3,550 126,912
Kellogg Co 1,300 85,313
PepsiCo Inc 3,900 114,075
Unilever NV New York Shrs 800 140,200
------------
694,237
------------
FOOD STORES - WHOLESALE 1.07%
SuperValu Inc 5,000 141,875
------------
HOUSEHOLD APPLIANCES 1.41%
Whirlpool Corp 4,000 186,500
------------
INSURANCE 3.29%
Marsh & McLennan 1,200 124,800
Ohio Casualty 5,000 177,500
SAFECO Corp 3,400 134,088
------------
436,388
------------
INVESTMENT BROKERS 0.82%
Morgan Stanley Group 1,900 108,537
------------
MEDICAL RELATED - DRUGS 3.54%
Abbott Laboratories 2,500 126,875
American Home Products 1,800 105,525
Bristol-Myers Squibb 1,100 119,625
Lilly (Eli) & Co 1,600 116,800
------------
468,825
------------
<PAGE>
OIL & GAS RELATED 4.29%
Amoco Corp 1,300 104,650
Exxon Corp 1,400 137,200
Repsol SA Sponsored ADR 5,000 190,625
Royal Dutch Petroleum New York
Registry 5 Gldr Shrs 800 136,600
------------
569,075
------------
PAPER & PAPER PRODUCTS 1.85%
Kimberly-Clark Corp 1,400 133,350
Westvaco Corp 3,900 112,125
------------
245,475
------------
POLLUTION CONTROL EQUIPMENT &
SERVICES 0.86%
WMX Technologies 3,500 114,187
------------
PUBLISHING 0.79%
Gannett Co 1,400 104,825
------------
RETAIL 5.98%
CVS Corp 2,100 86,888
Circuit City Stores 3,500 105,438
Genuine Parts 3,900 173,550
Giant Food Class A 3,300 113,850
K mart Corp* 8,500 88,188
Penney (J C) Co 2,100 102,375
Sherwin-Williams Co 2,200 123,200
------------
793,489
------------
TEXTILES & APPAREL MANUFACTURERS 1.25%
Liz Claiborne 2,000 77,250
Shaw Industries 7,500 88,125
------------
165,375
------------
TOBACCO 2.24%
American Brands 2,700 133,987
Imperial Tobacco Group PLC Sponsored ADR* 2,250 28,547
Philip Morris 1,200 135,150
------------
297,684
------------
TRANSPORTATION 1.22%
Caliber System 2,200 42,350
Illinois Central Series A 3,750 120,000
------------
162,350
------------
<PAGE>
UTILITIES 4.94%
CINergy Corp 3,700 123,488
Edison International 6,300 125,212
NYNEX Corp 1,300 62,563
Telefonica de Espana SA Sponsored ADR 2,000 138,500
Telefonos de Mexico SA de CV Sponsored ADR
Representing Ord Series L Shrs 3,400 112,200
Texas Utilities 2,300 93,725
------------
655,688
------------
TOTAL COMMON STOCKS
(Cost $6,677,867) 8,086,412
------------
FIXED INCOME SECURITIES 31.84%
US Government Obligations 22.10%
US Treasury Bonds
9.375%, 2/15/2006 500,000 601,562
9.250%, 2/15/2016 250,000 317,187
US Treasury Notes
7.500%, 11/15/2001 300,000 315,844
7.250%, 8/15/2004 250,000 263,203
6.375%, 7/15/1999 225,000 227,109
6.375%, 1/15/2000 300,000 302,625
6.375%, 8/15/2002 400,000 402,625
6.125%, 3/31/1998 500,000 501,094
------------
TOTAL US GOVERNMENT OBLIGATIONS
(Cost $2,923,550) 2,931,249
------------
US Government Agency Obligations 5.25%
Federal Home Loan Mortgage, Gold,
Participation Certificates
8.000%,10/1/2010 73,351 75,542
6.500%, 7/1/2001 97,538 97,576
Federal National Mortgage Association
Gtd Mortgage Pass-Through Certificates
8.500%, 3/1/2010 145,269 151,245
6.500%, 5/1/2026 147,730 141,085
6.000%, 5/1/2009 152,147 147,492
Government National Mortgage Association I
Pass-Through Certificates
7.500%, 3/15/2026 83,459 83,542
------------
TOTAL US GOVERNMENT AGENCY OBLIGATIONS
(Cost $692,103) 696,482
------------
Corporate Bonds 4.49%
BANKING 2.28%
ABN Amro Bank NV, Sub Notes
7.550%, 6/28/2006 200,000 206,826
<PAGE>
NationsBank Corp, Sub Notes,
6.500%, 3/15/2006 100,000 95,642
------------
302,468
------------
FOOD PRODUCTS & BEVERAGES 0.74%
PepsiCo Inc, Medium-Term Notes,
5.875%, 6/1/2000 100,000 98,536
------------
POLLUTION CONTROL EQUIPMENT &
SERVICES 1.47%
WMX Technologies, Notes,
6.375%, 12/1/2003 200,000 195,057
------------
TOTAL CORPORATE BONDS
(Cost $599,323) 596,061
------------
TOTAL FIXED INCOME SECURITIES
(Cost $4,214,976) 4,223,792
------------
SHORT-TERM INVESTMENTS -
REPURCHASE AGREEMENTS 7.19%
Repurchase Agreement with State Street Bank
& Trust Co dated 12/31/1996 due 1/2/1997
at 6.500%, repurchased at $954,345
(Collateralized by US Treasury
Bonds due 5/15/2017 at 8.750%,
value $985,859) (Cost $954,000) 954,000 954,000
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $11,846,843) (Cost for Income
Tax Purposes $11,893,579) 13,264,204
============
UTILITIES Portfolio
COMMON STOCKS 84.11%
OIL & GAS RELATED 17.02%
Coastal Corp 1,250 61,094
Enron Corp 1,200 51,750
ENSERCH Corp 600 13,800
Flores & Rucks* 400 21,300
Key Production* 800 10,200
Louis Dreyfus Natural Gas* 850 14,556
MidAmerican Energy Holdings 500 7,938
NGC Corp 700 16,275
PanEnergy Corp 700 31,500
Sonat Inc 1,150 59,225
TransCanada PipeLines 2,800 49,000
Union Pacific Resources Group 2,400 70,200
Williams Cos 2,250 84,375
------------
491,213
------------
<PAGE>
TELECOMMUNICATIONS 8.17%
AT&T Corp 1,200 52,200
Clearnet Communications Class A* 700 7,700
Deutsche Telekom AG Sponsored ADR* 2,000 41,788
Frontier Corp 850 19,231
Lucent Technologies 1 38
MFS Communications* 600 32,700
McLeod Inc Class A* 1,350 34,425
NEXTEL Communications Class A* 1,900 24,819
Portugal Telecom SA Sponsored ADR 200 5,650
Telefonica del Peru SA Sponsored ADR
Representing Class B Shrs 300 5,662
Viatel Inc* 1,300 11,700
------------
235,913
------------
Utilities 58.92%
ELECTRIC 32.16%
Allegheny Power System 1,400 42,525
American Electric Power 1,200 49,350
Calpine Corp* 1,000 20,000
Central & South West 1,230 31,519
Central Louisiana Electric 950 26,244
CILCORP Inc 300 10,987
CIPSCO Inc 1,400 50,575
DQE Inc 1,000 29,000
Empire District Electric 400 7,500
FPL Group 1,500 69,000
Florida Public Utilities 500 10,313
GPU Inc 200 6,725
IES Industries 1,200 35,850
Idaho Power 1,650 51,356
Interstate Power 300 8,700
KU Energy 2,100 63,000
NIPSCO Industries 1,300 51,513
Oklahoma Gas & Electric 1,040 43,420
PP&L Resources 600 13,800
PacifiCorp 2,200 45,100
PECO Energy 900 22,725
Portland General 910 38,220
Public Service of Colorado 2,500 97,187
SCANA Corp 2,000 53,500
Southern Co 400 9,050
TNP Enterprises 1,500 41,063
------------
928,222
------------
GAS 3.99%
Columbia Gas System 800 50,900
Equitable Resources 400 11,900
New Jersey Resources 400 11,700
ONEOK Inc 1,350 40,500
------------
115,000
------------
<PAGE>
TELEPHONE 22.77%
ALLTEL Corp 1,400 43,925
Ameritech Corp 1,270 76,994
Bell Atlantic 1,250 80,937
BellSouth Corp 1,970 79,539
Century Telephone Enterprises 1,200 37,050
Cincinnati Bell 200 12,325
GTE Corp 250 11,375
NYNEX Corp 1,650 79,406
SBC Communications 1,500 77,625
Southern New England Telecommunications 2,000 77,750
Sprint Corp 1,200 47,850
US WEST Communications Group 1,000 32,250
------------
657,026
------------
TOTAL UTILITIES 1,700,248
------------
TOTAL COMMON STOCKS
(Cost $2,329,281) 2,427,374
------------
PREFERRED STOCKS 0.83%
Utilities 0.83%
ELECTRIC 0.26%
Niagara Mohawk Power, 9.500%,
Series M Pfd 300 7,425
------------
GAS 0.57%
MCN Corp, Conv Pfd (Each shr consists
of five-sixths interest
in a shr of 8.750% Conv Pfd) 600 16,575
------------
TOTAL PREFERRED STOCKS
(Cost $20,531) 24,000
------------
SHORT-TERM INVESTMENTS - US GOVERNMENT
AGENCY OBLIGATIONS 15.06%
Federal Home Loan Mortgage
5.520%, 1/6/1997 100,000 99,923
5.460%, 1/2/1997 150,000 149,977
5.350%, 1/7/1997 185,000 184,835
------------
(Cost $434,735) 434,735
------------
TOTAL INVESTMENT SECURITIES AT VALUE 100.00%
(Cost $2,784,547#) 2,886,109
============
</TABLE>
<PAGE>
^ Step up bonds are obligations which increase the interest payment rate at a
specific point in time. Rate shown reflects current rate which may step up at
a future date.
* Security is a payment-in-kind (PIK) bond. PIK bonds may make interest payments
in additional securities.
~ Security may make dividend payments in other types of securities or cash.
* Security is non-income producing.
# Also represents cost for income tax purposes.
^ The following are restricted securities at December 31, 1996:
<TABLE>
<CAPTION>
Value as
Acquisition Acquisition % of
Description Date(s) Cost Net Assets
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Portfolio
Allied Waste North America,
Sr Sub Notes 10.250%,
12/1/2006 11/25/96 $250,000 1.87%
Brooks Fiber Properties,
Sr Discount Step-Up Notes
Zero Coupon, 11/1/2006 11/1/96 143,231 1.14
Celestica International,
Gtd Sr Sub Notes
10.500%, 12/31/2006 11/12/96 250,000 1.87
Continental Airlines, Sr Notes,
9.500%, 12/15/2001 12/4/96 250,000 1.82
Freedom Chemical, Sr Sub Notes,
10.625%, 10/15/2006 10/10/96 250,000 1.87
Gorges/Quick-to-Fix Foods,
Sr Sub Notes 11.500%, 12/1/2006 11/21/96 100,000 0.74
HS Resources, Sr Sub Notes,
9.250%, 11/15/2006 11/22/96 248,705 1.82
InterAct Systems, Units 7/30/96 70,514 0.36
International Home Foods,
Sr Sub Notes 10.375%, 11/1/2006 10/29/96 250,000 1.85
International Wireless
Communications Holdings, Units 9/13/96 108,498 0.78
LodgeNet Entertainment, Sr Notes
12/16/96 - 10.250%, 12/15/2006 12/23/96 300,250 2.14
Microcell Telecommunications
Conditional Warrants (Exp 2006) 11/19/96 9,906 0.10
Warrants (Exp 2006) 11/19/96 9,906 0.10
Motors & Gears, Sr Notes, Series A,
10.750%, 11/15/2006 11/1/96 100,000 0.74
National Energy Group, Sr Notes,
10.750%, 11/1/2006 10/29/96 250,000 1.87
Newport News Shipbuilding,
Sr Sub Notes 9.250%, 12/1/2006 11/21/96 250,000 1.84
<PAGE>
Occidente y Caribe Celular SA,
Units 5/31/96 127,429 0.96
OmniPoint Corp, Sr Notes, Series A,
11.625%, 8/15/2006 11/22/96 263,125 1.85
Parker Drilling, Gtd Sr Notes,
9.750%, 11/15/2006 11/5/96 248,038 1.87
PriCellular Wireless, Sr Notes,
10.750%, 11/1/2004 10/30/96 250,000 1.85
Rayovac Corp, Sr Sub Notes,
10.250%, 11/1/2006 10/17/96 250,000 1.83
TV Filme, Sr Notes, 12.875%,
12/15/2004 12/16/96 200,000 1.43
------------
30.70%
============
</TABLE>
Summary of Investments by Country
<TABLE>
<CAPTION>
% of
Country Investment
Country Code Securities Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Portfolio
Argentina AR 1.95% $261,875
Australia AS 1.76 235,125
Brazil BR 1.50 200,750
Canada CA 4.14 554,125
Colombia CO 1.01 135,000
Germany GM 0.41 55,500
United Kingdom UK 2.33 312,500
United States US 86.90 11,638,032
-------------------------
100.00% $13,392,907
=========================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
INVESCO Variable Investment Funds, Inc.
Statement of Assets and Liabilities
December 31, 1996
High Industrial Total
Yield Income Return Utilities
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment Securities:
At Cost~ $13,076,434 $19,657,182 $11,846,843 $2,784,547
=================================================================
At Value~ $13,392,907 $21,690,465 $13,264,204 $2,886,109
Cash 36,872 0 1,237 38,873
Receivables:
Fund Shares Sold 456,146 640,857 158,401 2,108
Dividends and Interest 169,086 70,747 95,556 4,198
Organization Costs 7,364 7,364 7,364 7,364
Prepaid Expenses and Other Assets 574 846 686 249
-----------------------------------------------------------------
TOTAL ASSETS 14,062,949 22,410,279 13,527,448 2,938,901
-----------------------------------------------------------------
LIABILITIES
Payables:
Custodian 0 39,581 0 0
Investment Securities Purchased 0 0 0 263,926
Fund Shares Repurchased 3,896 14,250 582 1,557
Accrued Expenses and Other Payables 20,702 14,181 13,763 13,170
-----------------------------------------------------------------
TOTAL LIABILITIES 24,598 68,012 14,345 278,653
-----------------------------------------------------------------
Net Assets at Value $14,038,351 $22,342,267 $13,513,103 $2,660,248
=================================================================
NET ASSETS
Paid-in Capital* $13,708,907 $20,308,654 $12,143,988 $2,560,194
Accumulated Undistributed (Distributions in
Excess of) Net Investment Income 8,383 330 (1,502) (1,508)
Accumulated Undistributed Net Realized
Gain (Loss) on Investment Securities
and Foreign Currency Transactions 4,588 0 (46,744) 0
Net Appreciation of Investment Securities
and Foreign Currency Transactions 316,473 2,033,283 1,417,361 101,562
-----------------------------------------------------------------
Net Assets at Value $14,038,351 $22,342,267 $13,513,103 $2,660,248
=================================================================
Shares Outstanding 1,191,508 1,559,051 1,023,019 222,570
Net Asset Value, Offering and Redemption
Price per Share $ 11.78 $ 14.33 $ 13.21 $ 11.95
=================================================================
</TABLE>
<PAGE>
~ Investment securities at cost and value at December 31, 1996 include
repurchase agreements of $609,000, $1,754,000 and $954,000 for High Yield,
Industrial Income and Total Return Portfolios, respectively.
* The Fund has 500 million authorized shares of common stock, par value of $0.01
per share. Of such shares, 100 million have been allocated to each individual
Portfolio.
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
INVESCO Variable Investment Funds, Inc.
Statement of Operations
Year Ended December 31, 1996
High Industrial Total
Yield Income Return Utilities
Portfolio Portfolio Portfolio Portfolio
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
INCOME
Dividends $ 399 $ 244,513 $ 180,891 $ 31,028
Interest 843,895 290,332 274,106 5,433
Foreign Taxes Withheld 0 (2,198) (4,149) (119)
-----------------------------------------------------------------
TOTAL INCOME 844,294 532,647 450,848 36,342
-----------------------------------------------------------------
EXPENSES
Investment Advisory Fees 50,693 105,932 77,890 5,716
Transfer Agent Fees 5,000 5,000 5,000 5,000
Administrative Fees 11,267 12,119 11,558 10,143
Custodian Fees and Expenses 9,301 10,691 8,271 3,076
Directors' Fees and Expenses 7,856 8,059 7,933 7,532
Organization Expenses 3,682 3,682 3,682 3,682
Professional Fees and Expenses 18,043 19,083 18,344 15,306
Registration Fees and Expenses 151 142 190 97
Other Expenses 5,895 3,706 2,637 488
-----------------------------------------------------------------
TOTAL EXPENSES 111,888 168,414 135,505 51,040
Fees and Expenses Absorbed
Investment Adviser (38,708) (34,295) (37,492) (39,955)
Fees and Expenses Paid Indirectly (5,590) (7,000) (4,545) (2,511)
-----------------------------------------------------------------
NET EXPENSES 67,590 127,119 93,468 8,574
-----------------------------------------------------------------
NET INVESTMENT INCOME 776,704 405,528 357,380 27,768
-----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENT SECURITIES
Net Realized Gain (Loss) on Investment
Securities and Foreign Currency
Transactions 412,110 1,122,522 (3,764) 30,198
Change in Net Appreciation of Investment
Securities and Foreign Currency
Transactions 260,801 1,369,048 888,821 87,087
-----------------------------------------------------------------
NET GAIN ON INVESTMENT SECURITIES 672,911 2,491,570 885,057 117,285
-----------------------------------------------------------------
Net Increase in Net Assets from Operations $ 1,449,615 2,897,098 1,242,437 145,053
=================================================================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
INVESCO Variable Investment Funds, Inc.
Statement of Changes in Net Assets
Year Ended December 31
High Yield Industrial Income
Portfolio Portfolio
------------------------------- ------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 776,704 $ 238,738 $ 405,528 $ 126,346
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 412,110 171,439 1,122,522 170,187
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 260,801 55,093 1,369,048 660,022
------------------------------- ------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 1,449,615 465,270 2,897,098 956,555
------------------------------- ------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (768,178) (239,112) (405,328) (126,762)
In Excess of Net Investment Income 0 0 (514) 0
Net Realized Gain on Investment Securities (407,604) (171,439) (1,121,678) (170,179)
------------------------------- ------------------------------
TOTAL DISTRIBUTIONS (1,175,782) (410,551) (1,527,520) (296,941)
------------------------------- ------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 13,157,662 7,336,473 15,001,088 8,978,068
Reinvestment of Distributions 1,175,782 410,551 1,527,203 296,941
------------------------------- ------------------------------
14,333,444 7,747,024 16,528,291 9,275,009
Amounts Paid for Repurchases of Shares (5,801,973) (3,192,335) (3,917,900) (2,096,909)
------------------------------- ------------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 8,531,471 4,554,689 12,610,391 7,178,100
------------------------------- ------------------------------
Total Increase in Net Assets 8,805,304 4,609,408 13,979,969 7,837,714
NET ASSETS
Beginning of Period 5,233,047 623,639 8,362,298 524,584
------------------------------- ------------------------------
End of Period $14,038,351 $5,233,047 $22,342,267 $8,362,298
=============================== ==============================
Accumulated Undistributed (Distributions in
Excess of) Net Investment Income Included
in Net Assets at End of Period $ 8,383 $ (143) $ 330 $ (200)
---------------------------------------------------------
<PAGE>
FUND SHARE TRANSACTIONS
Shares Sold 1,101,791 657,306 1,070,184 764,485
Shares Issued from Reinvestment
of Distributions 99,812 37,188 106,660 23,604
------------------------------- ------------------------------
1,201,603 694,494 1,176,844 788,089
Shares Repurchased (484,030) (282,878) (282,515) (175,375)
------------------------------- ------------------------------
Net Increase in Fund Shares 717,573 411,616 894,329 612,714
=============================== ==============================
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
INVESCO Variable Investment Funds, Inc.
Statement of Changes in Net Assets (Continued)
Year Ended December 31
Total Return Utilities
Portfolio Portfolio
------------------------------- ------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 357,380 $ 128,352 $ 27,768 $ 1,924
Net Realized Gain (Loss) on Investment
Securities and Foreign Currency
Transactions (3,764) 2,985 30,198 (175)
Change in Net Appreciation of Investment
Securities and Foreign Currency
Transactions 888,821 529,556 87,087 14,475
------------------------------- ------------------------------
NET INCREASE IN NET
ASSETS FROM OPERATIONS 1,242,437 660,893 145,053 16,224
------------------------------- ------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income (361,829) (124,147) (27,885) (1,807)
In Excess of Net Investment Income (43,701) 0 (1,508) 0
------------------------------- ------------------------------
Net Realized Gain on Investment Securities (781) (2,985) (30,023) 0
------------------------------- ------------------------------
TOTAL DISTRIBUTIONS (406,311) (127,132) (59,416) (1,807)
------------------------------- ------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 7,825,087 7,764,103 2,346,356 282,916
Reinvestment of Distributions 406,311 127,132 59,416 1,807
------------------------------- ------------------------------
8,231,398 7,891,235 2,405,772 284,723
Amounts Paid for Repurchases of Shares (2,107,418) (2,926,643) (120,953) (34,348)
------------------------------- ------------------------------
NET INCREASE IN NET ASSETS
FROM FUND SHARE TRANSACTIONS 6,123,980 4,964,592 2,284,819 250,375
------------------------------- ------------------------------
Total Increase in Net Assets 6,960,106 5,498,353 2,370,456 264,792
NET ASSETS
Beginning of Period 6,552,997 1,054,644 289,792 25,000
------------------------------- ------------------------------
End of Period $ 13,513,103 $ 6,552,997 $ 2,660,248 $ 289,792
=============================== ==============================
Accumulated Undistributed (Distributions
in Excess of) Net Investment Income
Included in Net Assets at End of Period $ (1,502) $ 4,449 $ (1,508) $ 117
---------------------------------------------------------------
<PAGE>
FUND SHARE TRANSACTIONS
Shares Sold 616,196 684,722 201,321 27,466
Shares Issued from Reinvestment
of Distributions 30,758 10,470 4,972 167
------------------------------- ------------------------------
646,954 695,192 206,293 27,633
Shares Repurchased (163,597) (260,017) (10,467) (3,389)
------------------------------- ------------------------------
Net Increase in Fund Shares 483,357 435,175 195,826 24,244
=============================== ==============================
</TABLE>
See Notes to Financial Statements
<PAGE>
INVESCO Variable Investment Funds, Inc.
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Variable
Investment Funds, Inc. (the "Fund"), was incorporated in Maryland and presently
consists of eight separate Portfolios: Dynamics Portfolio, Growth Portfolio,
Health Sciences Portfolio, High Yield Portfolio, Industrial Income Portfolio,
Small Company Growth Portfolio, Technology Portfolio, Total Return Portfolio and
Utilities Portfolio. High Yield Portfolio, Industrial Income Portfolio, Total
Return Portfolio and Utilities Portfolio (the "Portfolios") are presented
herein. The investment objectives of the Portfolios are: To seek a high level of
current income by investing principally in lower rated bonds and other debt
securities and in preferred stock for the High Yield Portfolio; to seek the best
possible current income for the Industrial Income Portfolio; to seek a high
total return on investment through capital appreciation and current income for
the Total Return Portfolio; and to seek capital appreciation and income on
securities of companies principally engaged in public utilities for the
Utilities Portfolio. Dynamics Portfolio, Health Sciences Portfolio, Small
Company Growth Portfolio and Technology Portfolio commenced investment
operations on January 1, 1997. The Fund is registered under the Investment
Company Act of 1940 (the "Act") as a diversified, open-end management investment
company. The Fund's shares are not offered directly to the public but are sold
exclusively to life insurance companies ("Participating Insurance Companies") as
a pooled funding vehicle for variable annuity and variable life insurance
contracts issued by separate accounts of the Participating Insurance Companies.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION - Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales
price in the market where such securities are primarily traded. If last
sales prices are not available, securities are valued at the highest closing
bid price obtained from one or more dealers making a market for such
securities or by a pricing service approved by the Fund's board of
directors.
Debt securities are valued at evaluated bid prices as determined by a
pricing service approved by the Fund's board of directors. If evaluated bid
prices are not available, debt securities are valued by averaging the bid
prices obtained from one or more dealers making a market for such
securities.
Foreign securities are valued at the closing price on the principal
stock exchange on which they are traded. In the event that closing prices
are not available for foreign securities, prices will be obtained from the
principal stock exchange at or prior to the close of the New York Stock
Exchange. Foreign currency exchange rates are determined daily prior to the
close of the New York Stock Exchange.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
by the Fund's board of directors. Restricted securities are valued in
accordance with procedures established by the Fund's board of directors.
<PAGE>
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies
are translated into U.S. dollars at the prevailing market rates as quoted by
one or more banks or dealers on the date of valuation. The cost of
securities is translated into U.S. dollars at the rates of exchange
prevailing when such securities were acquired. Income and expenses are
translated into U.S. dollars at rates of exchange prevailing when accrued.
B. REPURCHASE AGREEMENTS - Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to
ensure its market value exceeds the current market value of the repurchase
agreements including accrued interest.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the trade date and dividend income is recorded on the
ex dividend date. Certain dividends from foreign securities will be
recorded as soon as the Fund is informed of the dividend if such
information is obtained subsequent to the ex dividend date. Interest
income, which may be comprised of stated coupon rate, market discount
and original issue discount, is recorded on the accrual basis.
Discounts on debt securities purchased are amortized over the life of the
respective security as adjustments to interest income. Cost is determined
on the specific identification basis. The Fund may have elements of risk due
to concentrated investments in foreign issuers located in a specific
country. Such concentrations may subject the Fund to additional risks
resulting from future political or economic conditions and/or possible
impositions of adverse foreign governmental laws or currency exchange
restrictions. Net realized and unrealized gain or loss from investments
includes fluctuations from currency exchange rates and fluctuations in
market value.
The High Yield Portfolio invests primarily in high yield bonds, some of
which may be rated below investment grade. These high yield bonds may be
more susceptible than higher grade bonds to real or perceived adverse
economic or industry conditions. The secondary market, on which high yield
bonds are traded, may also be less liquid than the market for higher grade
bonds.
The Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in
foreign exchange rates. The Fund does not hold short-term forward foreign
currency contracts for trading purposes. The Fund may hold foreign currency
in anticipation of settling foreign security transactions and not for
investment purposes.
Restricted securities held by the Fund may not be sold except in exempt
transactions or in a public offering registered under the Securities Act of
1933. The risk of investing in such securities is generally greater than the
risk of investing in the securities of widely held, publicly traded
companies. Lack of a secondary market and resale restrictions may
result in the inability of each Portfolio to sell a security at a fair
price and may substantially delay the sale of the security which each
Portfolio seeks to sell. In addition, these securities may exhibit
greater price volatility than securities for which secondary markets exist.
Investments in securities of governmental agencies may only be
guaranteed by the respective agency's limited authority to borrow from the
U.S. Government and may not be guaranteed by the full faith and credit of
the United States.
<PAGE>
D. FEDERAL AND STATE TAXES - The Fund has complied and continues to comply with
the provisions of the Internal Revenue Code applicable to regulated
investment companies and, accordingly, has made or intends to make
sufficient distributions of net investment income and net realized capital
gains, if any, to relieve it from all federal and state income taxes and
federal excise taxes.
Total Return and Utilities Portfolios incurred and elected to defer
post-October 31 net capital losses of $8,192 and $1,911, respectively, to
the year ended December 31, 1997. Net capital loss carryovers utilized in
1996 by Utilities Portfolio amounted to $175. To the extent future capital
gains are offset by capital loss carryovers and deferred post-October 31
losses, such gains will not be distributed to shareholders. Therefore, no
federal income tax provision is required.
Dividends paid by the Fund from net investment income and distributions
of net realized short-term capital gains are, for federal income tax
purposes, taxable as ordinary income to shareholders. Of the ordinary income
distributions declared for the year ended December 31, 1996, amounts
qualifying for the dividends received deduction available to the Fund's
corporate shareholders were as follows:
Qualifying
Portfolio Percentages
- --------------------------------------------------------------------------------
High Yield Portfolio 0.03%
Industrial Income Portfolio 17.45%
Total Return Portfolio 37.31%
Utilities Portfolio 48.56%
Investment income received from foreign sources may be subject to
foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - Dividends and distributions
to shareholders are recorded by the Fund on the ex dividend/distribution
date. The Fund distributes net realized capital gains, if any, to its
shareholders at least annually, if not offset by capital loss carryovers.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for mortgage-backed securities, market discounts,
foreign currency transactions, nontaxable dividends, corporate actions, net
operating losses and expired capital loss carryforwards.
For the year ended December 31, 1996, the effects of such differences
were as follows:
Accumulated Accumulated
Undistributed Undistributed
Net Realized Net Gain on
Investment Investment
Portfolio Income Securities
- --------------------------------------------------------------------------------
Industrial Income Portfolio $ 844 $ (844)
Total Return Portfolio 42,199 (42,199)
<PAGE>
F. ORGANIZATION COSTS - Organization costs of $73,640 advanced by INVESCO Funds
Group, Inc. ("IFG") are amortized and are payable on a straight-line basis
over a sixty-month period from the date the Fund commenced operations. IFG
has agreed that if it redeems any of its initially acquired shares of the
Fund during the five years from the date the Fund commenced operations, the
proceeds payable to it in respect of such shares will be reduced by a pro
rata share of the Fund's unamortized organization costs.
G. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending
the settlement of transactions in foreign securities. A forward foreign
currency contract is an agreement between contracting parties to exchange an
amount of currency at some future time at an agreed upon rate. These
contracts are marked-to-market daily and the related appreciation or
depreciation of the contracts is presented in the Statement of Assets and
Liabilities.
H. EXPENSES - Each of the Portfolios bears expenses incurred specifically on
its behalf and, in addition, each Portfolio bears a portion of general
expenses, based on the relative net assets of each Portfolio.
Under an agreement between each Portfolio and the Fund's Custodian,
agreed upon Custodian Fees and Expenses are reduced by credits granted by
the Custodian from any temporarily uninvested cash. Similarly, Other
Expenses, which include Pricing Expenses, are reduced by credits earned by
each Portfolio from security brokerage transactions under certain
broker/service arrangements with third parties. Such credits are included in
Fees and Expenses Paid Indirectly in the Statement of Operations.
For the year ended December 31, 1996, Fees and Expenses Paid Indirectly
consisted of the following:
Custodian Fees Other
Portfolio and Expenses Expenses
- --------------------------------------------------------------------------------
High Yield Portfolio $5,562 $28
Industrial Income Portfolio 6,196 804
Total Return Portfolio 3,981 564
Utilities Portfolio 2,511 0
NOTE 2 - INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Fund's
investment adviser. As compensation for its services to the Fund, IFG receives
an investment advisory fee which is accrued daily at the applicable rate and
paid monthly. The fee is based on the annual rate of each Portfolio's average
net assets as follows:
AVERAGE NET ASSETS
-------------------------------------------
$0 to $500 Million Over
$500 to $1 $1
Portfolio Million Billion Billion
- --------------------------------------------------------------------------------
High Yield Portfolio 0.60% 0.55% 0.45%
Industrial Income Portfolio 0.75% 0.65% 0.55%
Total Return Portfolio 0.75% 0.65% 0.55%
Utilities Portfolio 0.60% 0.55% 0.45%
<PAGE>
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of High
Yield, Industrial Income and Utilities Portfolios are made by ITC. A separate
Sub-Advisory Agreement between IFG and INVESCO Capital Management, Inc. ("ICM"),
an affiliate of IFG, provides that investment decisions of Total Return
Portfolio are made by ICM. Fees for such sub-advisory services are paid by IFG.
In accordance with an Administrative Agreement, each Portfolio pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.015% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG receives a transfer agent fee of $5,000 per Portfolio per year. The fee
is paid monthly at one-twelfth of the annual fee.
IFG has voluntarily agreed, in some instances, to absorb certain fees and
expenses incurred by each Portfolio.
NOTE 3 - PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
December 31, 1996, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were as follows:
Portfolio Purchases Sales
- --------------------------------------------------------------------------------
High Yield Portfolio $37,718,150 $ 30,473,788
Industrial Income Portfolio 20,105,854 11,200,283
Total Return Portfolio 3,374,519 53,098
Utilities Portfolio 2,515,953 407,466
The aggregate cost of purchases and proceeds from sales of U.S. Government
securities were as follows:
Portfolio Purchases Sales
- --------------------------------------------------------------------------------
Industrial Income Portfolio $2,219,063 $1,013,778
Total Return Portfolio 3,098,876 1,082,807
NOTE 4 - APPRECIATION AND DEPRECIATION. At December 31, 1996, the gross
appreciation of securities in which there was an excess of value over tax cost,
the gross depreciation of securities in which there was an excess of tax cost
over value and the resulting net appreciation by Portfolio were as follows:
Gross Gross Net
Portfolio Appreciation Depreciation Appreciation
- --------------------------------------------------------------------------------
High Yield Portfolio $ 420,248 $ 103,775 $ 316,473
Industrial Income Portfolio 2,251,930 218,647 2,033,283
Total Return Portfolio 1,599,300 181,939 1,417,361
Utilities Portfolio 130,695 29,133 101,562
NOTE 5 - TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG, ITC or ICM.
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan were based on an annual rate equal to 25% of the retainer fee at the time
of retirement. As of July 1, 1996, benefits are based on an annual rate of 40%
of the retainer fee at the time of retirement.
<PAGE>
Pension expenses for the year ended December 31, 1996, included in
Directors' Fees and Expenses in the Statement of Operations, and unfunded
accrued pension costs and pension liability included in Prepaid Expenses and
Accrued Expenses, respectively, in the Statement of Assets and Liabilities were
as follows:
Unfunded
Pension Accrued Pension
Portfolio Expenses Pension Costs Liability
- --------------------------------------------------------------------------------
High Yield Portfolio $71 $137 $215
Industrial Income Portfolio 93 227 329
Total Return Portfolio 82 136 227
Utilities Portfolio 4 17 20
NOTE 6 - LINE OF CREDIT. The Fund has available a Redemption Line of Credit
Facility ("LOC"), from a consortium of national banks, to be used for temporary
or emergency purposes to fund redemptions of investor shares. The LOC permits
borrowings to a maximum of 10% of the Net Assets at Value of each respective
Portfolio. Each Portfolio agrees to pay annual fees and interest on the unpaid
principal balance based on prevailing market rates as defined in the agreement.
At December 31, 1996, there were no such borrowings.
<PAGE>
INVESCO Variable Investment Funds, Inc.
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
Period
Ended
Year Ended December 31 December 31
---------------------- -----------
1996 1995 1994^
High Yield Portfolio
PER SHARE DATA
Net Asset Value -
Beginning of Period $ 11.04 $ 10.01 $ 10.00
---------------------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.72 0.55 0.05
Net Gains on Securities
(Both Realized and
Unrealized) 1.11 1.43 0.01
---------------------- -----------
Total from Investment
Operations 1.83 1.98 0.06
---------------------- -----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.71 0.55 0.05
Distributions from
Capital Gains 0.38 0.40 0.00
---------------------- -----------
Total Distributions 1.09 0.95 0.05
---------------------- -----------
Net Asset Value -
End of Period $ 11.78 $ 11.04 $ 10.01
====================== ===========
TOTAL RETURN> 16.59% 19.76% 0.60%*
RATIOS
Net Assets -- End of
Period ($000 Omitted) $14,033 $5,233 $ 624
Ratio of Expenses to
Average Net Assets# 0.87%@ 0.97%@ 0.74%~
Ratio of Net Investment
Income to Average
Net Assets# 9.19% 8.79% 2.72%~
Portfolio Turnover Rate 380% 310% 23%*
<PAGE>
^ From May 27, 1994, commencement of operations, to December 31, 1994.
> Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for the
periods shown.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995 and the period ended December 31, 1994.
If such expenses had not been voluntarily absorbed, ratio of expenses to
average net assets would have been 1.32%, 2.71% and 30.38%, respectively, and
ratio of net investment income to average net assets would have been 8.74%,
7.05% and (26.92%), respectively.
@ Ratio is based on Total Expenses of the Portfolio, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
<PAGE>
INVESCO Variable Investment Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
Period
Ended
Year Ended December 31 December 31
-------------------------- -----------
1996 1995 1994^
Industrial Income Portfolio
PER SHARE DATA
Net Asset Value -
Beginning of Period $ 12.58 $ 10.09 $ 10.00
-------------------------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.28 0.19 0.03
Net Gains on Securities
(Both Realized and
Unrealized) 2.52 2.76 0.09
-------------------------- ----------
Total from Investment
Operations 2.80 2.95 0.12
-------------------------- ----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.28 0.20 0.03
Distributions from
Capital Gains 0.77 0.26 0.00
-------------------------- ----------
Total Distributions 1.05 0.46 0.03
-------------------------- ----------
Net Asset Value -
End of Period $ 14.33 $ 12.58 $ 10.09
========================== ==========
TOTAL RETURN> 22.28% 29.25% 1.23%*
RATIOS
Net Assets -
End of Period
($000 Omitted) $22,342 $ 8,362 $ 525
Ratio of Expenses to
Average Net Assets# 0.95%@ 1.03%@ 0.79%~
Ratio of Net Investment
Income to Average
Net Assets# 2.87% 3.50% 1.69%~
Portfolio Turnover Rate 93% 97% 0%*
Average Commission
Rate Paid^^ $0.0867 - -
<PAGE>
^ From August 10, 1994, commencement of operations, to December 31, 1994.
+ Distributions in excess of net investment income for the year ended December
31, 1996, aggregated less than $0.01 on a per share basis.
> Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for
the periods shown.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995 and the period ended December 31,
1994. If such expenses had not been voluntarily absorbed, ratio of expenses
to average net assets would have been 1.19%, 2.31% and 32.55%, respectively,
and ratio of net investment income to average net assets would have been
2.63%, 2.22% and (30.07%), respectively.
@ Ratio is based on Total Expenses of the Portfolio, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
INVESCO Variable Investment Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
Period
Ended
Year Ended December 31 December 31
--------------------------- -----------
1996 1995 1994^
Total Return Portfolio
PER SHARE DATA
Net Asset Value -
Beginning of Period $ 12.14 $ 10.09 $ 10.00
--------------------------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.36 0.25 0.09
Net Gains on Securities
(Both Realized and
Unrealized) 1.12 2.05 0.09
--------------------------- -----------
Total from Investment
Operations 1.48 2.30 0.18
--------------------------- -----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.36 0.24 0.09
In Excess of Net
Investment Income 0.05 0.00 0.00
Distributions from
Capital Gains 0.00 0.01 0.00
--------------------------- -----------
Total Distributions 0.41 0.25 0.09
--------------------------- -----------
Net Asset Value -
End of Period $ 13.21 $ 12.14 $ 10.09
=========================== ===========
TOTAL RETURN> 12.18% 22.79% 1.75%*
RATIOS
Net Assets -
End of Period
($000 Omitted) $ 13,513 $ 6,553 $ 1,055
Ratio of Expenses to
Average Net Assets# 0.94%@ 1.01%@ 0.86%~
Ratio of Net Investment
Income to Average
Net Assets# 3.44% 3.91% 3.86%~
Portfolio Turnover Rate 12% 5% 0%*
Average Commission
Rate Paid^^ $ 0.0890 - -
<PAGE>
^ From June 2, 1994, commencement of operations, to December 31, 1994.
> Total return does not reflect expenses that apply to the related insurance
policies, and inclusion of these charges would reduce the total return for
the periods shown.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995 and the period ended December 31,
1994. If such expenses had not been voluntarily absorbed, ratio of expenses
to average net assets would have been 1.30%, 2.51% and 16.44%, respectively,
and ratio of net investment income to average net assets would have been
3.08%, 2.41% and (11.72%), respectively.
@ Ratio is based on Total Expenses of the Portfolio, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
~ Annualized
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
INVESCO Variable Investment Funds, Inc.
Financial Highlights (Continued)
(For a Fund Share Outstanding Throughout Each Period)
Period
Ended
Year Ended December 31 December 31
--------------------------- -----------
1996 1995 1994+
Utilities Portfolio
PER SHARE DATA
Net Asset Value -
Beginning of Period $ 10.84 $ 10.00 $ 10.00
--------------------------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.13 0.07 0.00
Net Gains on Securities
(Both Realized and
Unrealized) 1.26 0.84 0.00
--------------------------- -----------
Total from Investment
Operations 1.39 0.91 0.00
--------------------------- -----------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.13 0.07 0.00
In Excess of Net
Investment Income 0.01 0.00 0.00
--------------------------- -----------
Distributions from
Capital Gains 0.14 0.00 0.00
--------------------------- -----------
Total Distributions 0.28 0.07 0.00
--------------------------- -----------
Net Asset Value -
End of Period $ 11.95 $ 10.84 $ 10.00
=========================== ===========
TOTAL RETURN> 12.76% 9.08% 0.00%
RATIOS
Net Assets -
End of Period
($000 Omitted) $2,660 $290 $25
Ratio of Expenses to
Average Net Assets# 1.16%@ 1.80%@ 0.00%
Ratio of Net Investment
Income to Average
Net Assets# 2.92% 2.47% 0.00%
Portfolio Turnover Rate 48% 24% 0%
Average Commission Rate
Paid^^ $ 0.1055 - -
<PAGE>
+ All of the expenses for the Portfolio were voluntarily absorbed by IFG for
the period ended December 31, 1994, since investment operations did not
commence during 1994.
> Total return does not reflect expenses that apply to the related
insurance policies, and inclusion of these charges would reduce the total
return for the periods shown.
# Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have been
5.36% and 57.13%, respectively, and ratio of net investment income to average
net assets would have been (1.28%) and (52.86%), respectively.
@ Ratio is based on Total Expenses of the Portfolio, less Expenses Absorbed by
Investment Adviser, which is before any expense offset arrangements.
^^ The average commission rate paid is the total brokerage commissions paid on
applicable purchases and sales of securities for the period divided by the
total number of related shares purchased or sold which is required to be
disclosed for fiscal years beginning September 1, 1995 and thereafter.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Variable Investment Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the portfolios constituting
the INVESCO Variable Investment Funds, Inc. (the "Fund") at December 31, 1996,
the results of each of their operations for the year then ended, the changes in
each of their net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with the custodian and the application of alternative procedures
for unsettled security transactions, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
January 24, 1997
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INVESCO FUNDS
INVESCO Funds Group, Inc.(SM) Distributor
7800 E. Union Avenue
Post Office Box 173706
Denver, CO 80217-3706
1-800-525-8085
This information must be preceded or accompanied by a current prospectus.
