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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-7452
--------------------------------------------------
AIM Variable Insurance Funds
-----------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
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(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
-----------------------
Date of fiscal year end: 12/31
----------------
Date of reporting period: 12/31/04
----------------
Item 1. Reports to Stockholders.
AIM V.I. CORE STOCK FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-CORE EQUITY FUND
WAS RENAMED AIM V.I. CORE STOCK FUND
AIM V.I. CORE STOCK FUND seeks to provide a high total return
through both growth and current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF 12/31/04
AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. CORE STOCK FUND
MANAGEMENT'S DISCUSSION
OF FUND PERFORMANCE
As did the market at large, AIM V.I. Core Stock Fund produced its best total
return during the fourth quarter of 2004. However, for the year as a whole the
fund underperformed its broad, market index and its Lipper index of
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 4.24%
Series II Shares 3.99
S&P 500 Index (Broad Market Index) 10.87
Lipper Large-Cap Core Fund Index
(Peer Group Index) 8.29
Source: Lipper, Inc.
================================================================================
comparable funds mainly because the fund was positioned largely in sectors
expected to do well in a strong economy. Markets, by contrast, behaved as if
macroeconomic indicators such as rising oil prices might dampen economic growth.
Not until the final quarter of the year did the markets share our optimism.
HOW WE INVEST
The fund's investment strategy is a disciplined strategy we call multiple
attribute diversification. With this strategy, stocks can be eligible for
selection if they if they possess at least one of three attributes. These
attributes are:
.. Low P/E ratio: The stock's price-to-earnings ratio must be 20% below the
average P/E ratio of the stocks in the S&P 500.
.. High yield: The stock's dividend yield must be 20% higher than the average
dividend of the stocks in the S&P 500.
.. Above average growth: The stock exhibits one of the following: earnings growth
of at least 10% over the last five years, no down years in earnings for the
previous five years, or earnings that are consistently in the top 25% of stocks
in the S&P 500.
The fund's portfolio is diversified across these three attributes, in that
we maintain a 20% to 50% exposure to each attribute. This results in a portfolio
that contains both growth and value stocks. We believe that because growth and
value stocks alternately outperform one another as market conditions change, a
portfolio containing both types helps protect the fund from the volatility that
can be associated with investing solely in growth or value stocks.
The fund focuses on large- and mid-cap stocks. After stocks with the
appropriate market capitalization have been found to possess one or more of the
three attributes, they are further analyzed so that we are certain they pass
scrutiny based on fundamental, valuation and technical factors.
MARKET CONDITIONS AND YOUR FUND
Very limited exposure to such strongly performing sectors as energy and
utilities and security selection in other sectors explain most of the disparity
in performance between the fund and indexes.
For the year covered by this report, the fund has been positioned based on
management's expectation of continuing economic expansion and correspondingly
strong capital markets. Thus, AIM V.I. Core Stock Fund has been focused on
sectors that are most leveraged to strong economic activity, including
materials, information technology and industrials. We have been underweight the
more defensive sectors of the market, including energy and utilities, which were
the best-performing sectors of the S&P 500 Index for the year.
For much of the fiscal year, investors were simply less optimistic than we
were about prospects for the economy. Only late in the year did investors react
to a decline in oil prices, improving economic statistics and the end of another
presidential election cycle; markets then began to favor more cyclical sectors
such as industrials, a sector that performed well for the fund.
The telecommunication services sector is another sector that performed well
during the fiscal year. We had no holdings in this sector because of our
concerns about the shifting regulatory environment for telecommunications
companies.
================================================================================
PORTFOLIO COMPOSITION
By sector
1. Information Technology 22.5%
2. Financials 21.2
3. Industrials 16.1
4. Health Care 13.3
5. Consumer Discretionary 9.0
6. Materials 8.3
7. Consumer Staples 7.3
8. Energy 1.6
Money Market Funds Plus Other Assets Less Liabilities 0.7
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Johnson & Johnson 3.4%
2. Pfizer Inc. 3.0
3. General Electric Co. 2.9
4. Wal-Mart Stores, Inc. 2.8
5. Eaton Corp. 2.8
6. Citigroup Inc. 2.7
7. Goldman Sachs Group, Inc. (The) 2.6
8. American International Group, Inc. 2.6
9. Microsoft Corp. 2.5
10. Morgan Stanley 2.4
================================================================================
================================================================================
TOP 10 INDUSTRIES*
1. Pharmaceuticals 10.3%
2. Semiconductors 7.4
3. Investment Banking & Brokerage 6.9
4. Industrial Machinery 6.4
5. Thrifts & Mortgage Finance 4.7
6. Industrial Gases 3.9
7. Systems Software 3.9
8. Aerospace & Defense 3.9
9. Other Diversified Financial Services 3.9
10. Home Improvement Retail 3.8
================================================================================
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding money market fund holdings.
2
AIM V.I. CORE STOCK FUND
The fund's large-cap bias also worked against it this year, as mid- and
small-cap stocks outperformed large-cap stocks.
Two industrial holdings that we were pleased with were Illinois Tool Works
and Eaton Corp.
.. Illinois Tool Works manufactures an array of highly engineered fasteners and
components, as well as specialty products for customers around the world. We
added the company to the portfolio during the fiscal year based on its highly
diversified business and improving earnings outlook. In the fall of 2004, the
company announced record earnings for its 2004 third quarter.
.. Eaton Corp. is another diversified manufacturer of components used in the
automotive, aerospace and other industrial segments. It also announced healthy
earnings growth as it benefited from the overall strength of the economy.
Other holdings that performed well included:
.. Rapidly expanding eBay, a leader in electronic commerce, which is deploying
its Internet auction format to many foreign countries. eBay now includes PayPal,
an electronic payment system that can be used to pay for such Internet
transactions as downloading music, not to mention purchasing auction items
online. PayPal has been a boon for earnings, providing extra revenue to eBay
beyond the fees paid for transactions. We took our profits on this stock and no
longer held it as of fiscal year-end.
.. Johnson & Johnson, which exceeded earnings expectations and managed not to be
tainted by the controversy emanating from the decision by Merck (not a fund
holding) to withdraw Vioxx from the market.
.. Target Corporation, which benefited from positive investor response to its
sale of its Marshall Field's and Mervyn's department store units.
Other successful holdings included EMC and Dell, which posted strong
earnings and continued to benefit from their dominance within the storage and
personal computer industries.
Detractors from performance included
.. Intel and Cisco, which were negatively affected by slowing growth rates in the
technology sector. Information technology stocks suffered during the fiscal year
because of general hesitancy on the part of corporations to invest capital in
technology.
.. Pfizer, which was caught up in the Vioxx controversy. The health care sector
as a whole performed poorly during 2004, and pharmaceutical stocks were
especially hard hit. However, we remain confident about our pharmaceutical
holdings, which as the fiscal year closed had valuations last seen during 1993
and 1994.
Finally, not owning certain entertainment/cable companies, had a negative
impact on performance.
IN CLOSING
At the close of the fiscal year, the fund's assets under management stood at
$95.9 million, and the portfolio held 6l stocks.
Though fund performance was not as strong as one might have hoped, we are
pleased to have produced a positive total return for shareholders this fiscal
year despite the fact that for most of the period the markets did not reflect
our optimism about the U.S. economy. We remain confident in our emphasis on
stocks with above-average earnings, low price/earnings ratios and dividend
yield. We thank you for your continued investment in AIM V.I. Core Stock Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
Portfolio Management Team The fund is team managed. The investment team includes
portfolio managers who concentrate on stock selection and investment personnel
who concentrate on portfolio strategies, as well as research analysts.
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to 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 holdings, differences in accounting,
political risks and the lesser degree of public information required to be
provided by non-U.S. companies. The fund may invest up to 25% of its assets in
securities of non-U.S. issuer, provided that all such securities are denominated
and pay interest in U.S. dollars (such as Eurobonds and Yankee Bonds).
Securities of Canadian issuers and American Depositary Receipts are not subject
to this limitation.
At any given time, the fund may be subject to sector risk, which means a
certain sector may underperform other sectors or the market as a whole. The fund
is not limited with respect to the sectors in which it can invest.
3
AIM V.I. CORE STOCK FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs including management fees,
distribution and/or service fees (12b-l) and other fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the fund and to compare these costs with ongoing costs of investing in other
mutual funds. The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period, July 1, 2004 - December
31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
your actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
----------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (07/01/04) (12/31/04)/1/ Period/2,3/ (12/31/04) Period/2,4/
- --------- ----------------- -------------- ------------ -------------- -----------
Series I $1,000.00 $1,041.20 $6.31 $1,018.95 $6.24
Series II 1,000.00 1,040.20 7.59 1,017.70 7.51
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual
expenses and will differ from the hypothetical ending account value which
is based on the fund's expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004, to December 31, 2004, was 4.12% and 4.02% for Series I
and II shares, respectively
/2/ Expenses are equal to the fund's annualized expense ratio (1.23% and 1.48%
for Series I and II shares, respectively) multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year
period). Effective on January 1, 2005, the advisor, contractually agreed to
waive a portion of its advisory fees. The annualized expense ratios
restated as if this agreement had been in effect throughout the entire most
recent fiscal half year are 1.18% and 1.42% for Series I and II shares,
respectively.
/3/ The actual expenses paid restated as if the changes discussed above had
been in effect throughout the most recent fiscal half year are $6.05 and
$7.28 for Series I and II shares, respectively.
/4/ The hypothetical expenses paid restated as if the changes discussed above
had been in effect throughout the most recent fiscal half year are $5.99
and $7.20 for Series I and II shares, respectively.
================================================================================
4
AIM V.I. CORE STOCK FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the early years depicted in the chart before
reinvested distributions and compounding create the potential for the original
investment to grow to very large numbers. Had the chart used a linear scale
along its vertical axis, you would not be able to see as clearly the movements
in the value of the fund and the indexes in the early years depicted. We use a
logarithmic scale in financial reports of funds that have more than five years
of performance history.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
10 Years 10.22%
5 Years -0.27
1 Year 4.24
Series II Shares
10 Years 9.95%
5 Years -0.51
1 Year 3.99
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the blended returns of the historical performance of the fund's
Series II shares since their inception and the restated historical performance
of the fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the higher Rule 12b-1 fees applicable to the Series
II shares. The inception date of the fund's Series I shares is 8/9/94. The
inception date of the fund's Series II shares is 4/30/04. The Series I and
Series II shares invest in the same portfolio of securities and will have
substantially similar performance, except to the extent that expenses borne by
each class differ.
================================================================================
RESULTS OF A $10,000 INVESTMENT
8/9/94-12/31/04 Index results from 7/31/94
[MOUNTAIN CHART]
AIM V.I. Core Stock Fund- S&P 500 Lipper Large-Cap
Date Series I Index Core Fund Index
- --------- ------------------------- ------- ----------------
7/31/1994 $10000 $10000 $10000
9/94 9990 10155 10140
12/94 10123 10153 10033
3/95 10704 11140 10823
6/95 11506 12202 11719
9/95 12068 13171 12591
12/95 13083 13964 13219
3/96 13476 14713 13899
6/96 14559 15373 14403
9/96 15047 15848 14861
12/96 15996 17168 15841
3/97 16297 17629 15973
6/97 18250 20704 18656
9/97 20058 22255 20089
12/97 20500 22893 20471
3/98 22459 26085 23233
6/98 22591 26951 24163
9/98 20883 24276 21394
12/98 23634 29441 25984
3/99 24419 30907 27111
6/99 26884 33081 28611
9/99 25133 31021 26743
12/99 27142 35633 31012
3/00 28190 36449 32335
6/00 27594 35481 31598
9/00 28727 35137 31481
12/00 28458 32390 28727
3/01 25877 28552 25147
6/01 26934 30222 26487
9/01 23747 25788 22702
12/01 25908 28543 25040
3/02 26591 28622 25057
6/02 23859 24789 21946
9/02 19675 20509 18493
12/02 20957 22237 19723
3/03 20147 21537 19110
6/03 23113 24851 21725
9/03 23481 25508 22204
12/03 25703 28612 24615
3/04 25575 29096 24862
6/04 25732 29597 25167
9/04 24829 29043 24570
12/04 $26793 $31723 $26655
Source: Lipper, Inc.
================================================================================
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or financial advisor for the most recent
month-end variable product performance. Performance figures reflect fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
AIM V.I. Core Stock Fund, a series portfolio of AIM Variable Insurance
Funds, is currently offered through insurance companies issuing variable
products. You cannot purchase shares of the fund directly. Performance figures
given represent the fund and are not intended to reflect actual variable product
values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return.*
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P
500--registered trademark-- Index) is an index of common stocks frequently used
as a general measure of U.S. stock market performance.
The unmanaged Upper Large-Cap Core Fund Index represents an average of the
performance of the 30 largest large-capitalization core equity funds tracked by
Lipper, Inc., an independent mutual fund performance monitor.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
MARKET
SHARES VALUE
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COMMON STOCKS & OTHER EQUITY
INTERESTS-99.28%
AEROSPACE & DEFENSE-3.88%
Honeywell International Inc. 44,100 $ 1,561,581
---------------------------------------------------------------------------
United Technologies Corp. 20,900 2,160,015
---------------------------------------------------------------------------
3,721,596
---------------------------------------------------------------------------
ALUMINUM-1.25%
Alcoa Inc. 38,100 1,197,102
---------------------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-1.45%
Bank of New York Co., Inc. (The) 41,500 1,386,930
---------------------------------------------------------------------------
BIOTECHNOLOGY-1.15%
Amgen Inc./(a)/ 17,200 1,103,380
---------------------------------------------------------------------------
CASINOS & GAMING-1.19%
International Game Technology 33,100 1,137,978
---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-3.22%
Cisco Systems, Inc./(a)/ 95,400 1,841,220
---------------------------------------------------------------------------
Lucent Technologies Inc.-Wts., expiring 12/10/07/(b)/ 4,502 7,113
---------------------------------------------------------------------------
QUALCOMM Inc. 29,200 1,238,080
---------------------------------------------------------------------------
3,086,413
---------------------------------------------------------------------------
COMPUTER HARDWARE-3.71%
Dell Inc./(a)/ 53,400 2,250,276
---------------------------------------------------------------------------
International Business Machines Corp. 13,300 1,311,114
---------------------------------------------------------------------------
3,561,390
---------------------------------------------------------------------------
COMPUTER STORAGE &
PERIPHERALS-1.92%
EMC Corp./(a)/ 123,600 1,837,932
---------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.26%
Deere & Co. 16,200 1,205,280
---------------------------------------------------------------------------
CONSUMER FINANCE-1.69%
MBNA Corp. 57,600 1,623,744
---------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-
1.31%
First Data Corp. 29,500 1,254,930
---------------------------------------------------------------------------
DIVERSIFIED CHEMICALS-1.93%
E. I. du Pont de Nemours & Co. 16,400 804,420
---------------------------------------------------------------------------
PPG Industries, Inc. 15,400 1,049,664
---------------------------------------------------------------------------
1,854,084
---------------------------------------------------------------------------
DRUG RETAIL-2.35%
Walgreen Co. 58,700 2,252,319
---------------------------------------------------------------------------
MARKET
SHARES VALUE
----------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-1.58%
Emerson Electric Co. 21,600 $ 1,514,160
----------------------------------------------------------
FOREST PRODUCTS-1.24%
Weyerhaeuser Co. 17,700 1,189,794
----------------------------------------------------------
GENERAL MERCHANDISE STORES-1.30%
Target Corp. 24,000 1,246,320
----------------------------------------------------------
HEALTH CARE EQUIPMENT-1.81%
Boston Scientific Corp./(a)/ 22,200 789,210
----------------------------------------------------------
Medtronic, Inc. 19,000 943,730
----------------------------------------------------------
1,732,940
----------------------------------------------------------
HOME IMPROVEMENT RETAIL-3.75%
Home Depot, Inc. (The) 33,900 1,448,886
----------------------------------------------------------
Lowe's Cos., Inc. 37,300 2,148,107
----------------------------------------------------------
3,596,993
----------------------------------------------------------
HOUSEHOLD PRODUCTS-1.11%
Procter & Gamble Co. (The) 19,300 1,063,044
----------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-2.84%
Wal-Mart Stores, Inc. 51,600 2,725,512
----------------------------------------------------------
INDUSTRIAL CONGLOMERATES-2.89%
General Electric Co. 76,100 2,777,650
----------------------------------------------------------
INDUSTRIAL GASES-3.91%
Air Products & Chemicals, Inc. 25,800 1,495,626
----------------------------------------------------------
Praxair, Inc. 51,100 2,256,065
----------------------------------------------------------
3,751,691
----------------------------------------------------------
INDUSTRIAL MACHINERY-6.43%
Eaton Corp. 37,000 2,677,320
----------------------------------------------------------
Illinois Tool Works Inc. 14,900 1,380,932
----------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 26,300 2,111,890
----------------------------------------------------------
6,170,142
----------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-6.88%
Goldman Sachs Group, Inc. (The) 24,200 2,517,768
----------------------------------------------------------
Merrill Lynch & Co., Inc. 29,500 1,763,215
----------------------------------------------------------
Morgan Stanley 41,700 2,315,184
----------------------------------------------------------
6,596,167
----------------------------------------------------------
MOVIES & ENTERTAINMENT-1.09%
Viacom Inc.-Class B 28,700 1,044,393
----------------------------------------------------------
MULTI-LINE INSURANCE-2.61%
American International Group, Inc. 38,200 2,508,594
----------------------------------------------------------
AIM V.I. CORE STOCK FUND
MARKET
SHARES VALUE
----------------------------------------------------------
OIL & GAS DRILLING-1.57%
ENSCO International Inc. 13,600 $ 431,664
----------------------------------------------------------
Transocean Inc. (Cayman Islands)/(a)/ 25,300 1,072,467
----------------------------------------------------------
1,504,131
----------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-3.86%
Citigroup Inc. 53,166 2,561,538
----------------------------------------------------------
JPMorgan Chase & Co. 29,200 1,139,092
----------------------------------------------------------
3,700,630
----------------------------------------------------------
PHARMACEUTICALS-10.34%
Forest Laboratories, Inc./(a)/ 30,000 1,345,800
----------------------------------------------------------
Johnson & Johnson 51,600 3,272,472
----------------------------------------------------------
Lilly (Eli) & Co. 23,700 1,344,975
----------------------------------------------------------
Pfizer Inc. 106,880 2,874,003
----------------------------------------------------------
Wyeth 25,300 1,077,527
----------------------------------------------------------
9,914,777
----------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-1.13%
Applied Materials, Inc./(a)/ 63,600 1,087,560
----------------------------------------------------------
SEMICONDUCTORS-7.35%
Altera Corp./(a)/ 50,600 1,047,420
----------------------------------------------------------
Intel Corp. 84,500 1,976,455
----------------------------------------------------------
Linear Technology Corp. 33,900 1,313,964
----------------------------------------------------------
Maxim Integrated Products, Inc. 16,200 686,718
----------------------------------------------------------
Texas Instruments Inc. 82,400 2,028,688
----------------------------------------------------------
7,053,245
----------------------------------------------------------
MARKET
SHARES VALUE
---------------------------------------------------------------
SOFT DRINKS-1.02%
PepsiCo, Inc. 18,800 $ 981,360
---------------------------------------------------------------
SPECIALTY STORES-1.70%
Bed Bath & Beyond Inc./(a)/ 25,300 1,007,699
---------------------------------------------------------------
Tiffany & Co. 19,600 626,612
---------------------------------------------------------------
1,634,311
---------------------------------------------------------------
SYSTEMS SOFTWARE-3.89%
Microsoft Corp. 91,000 2,430,610
---------------------------------------------------------------
Symantec Corp./(a)/ 50,600 1,303,456
---------------------------------------------------------------
3,734,066
---------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-4.67%
Fannie Mae 25,500 1,815,855
---------------------------------------------------------------
PMI Group, Inc. (The) 26,900 1,123,075
---------------------------------------------------------------
Radian Group Inc. 28,900 1,538,636
---------------------------------------------------------------
4,477,566
---------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $87,895,551) 95,228,124
---------------------------------------------------------------
TOTAL INVESTMENTS-99.28% (Cost $87,895,551) 95,228,124
---------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.72% 690,790
---------------------------------------------------------------
NET ASSETS-100.00% $95,918,914
---------------------------------------------------------------
Investment Abbreviations:
Wts.- Warrants
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CORE STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $87,895,551) $ 95,228,124
- -------------------------------------------------------------------------------
Receivables for:
Investments sold 888,752
- -------------------------------------------------------------------------------
Fund shares sold 146,435
- -------------------------------------------------------------------------------
Dividends 58,495
- -------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 11,155
- -------------------------------------------------------------------------------
Total assets 96,332,961
- -------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 10,134
- -------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 14,310
- -------------------------------------------------------------------------------
Amount due to custodian 193,905
- -------------------------------------------------------------------------------
Accrued administrative services fees 153,103
- -------------------------------------------------------------------------------
Accrued distribution fees-Series II 7
- -------------------------------------------------------------------------------
Accrued transfer agent fees 1,646
- -------------------------------------------------------------------------------
Accrued operating expenses 40,942
- -------------------------------------------------------------------------------
Total liabilities 414,047
- -------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 95,918,914
- -------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 98,411,338
- -------------------------------------------------------------------------------
Undistributed net investment income 355,507
- -------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities (10,180,504)
- -------------------------------------------------------------------------------
Unrealized appreciation of investment securities 7,332,573
- -------------------------------------------------------------------------------
$ 95,918,914
- -------------------------------------------------------------------------------
NET ASSETS:
Series I $ 95,908,160
- -------------------------------------------------------------------------------
Series II $ 10,754
- -------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 5,180,941
- -------------------------------------------------------------------------------
Series II 582
- -------------------------------------------------------------------------------
Series I:
Net asset value per share $ 18.51
- -------------------------------------------------------------------------------
Series II:
Net asset value per share $ 18.48
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends $ 1,540,159
- -------------------------------------------------------------------------------
Dividends from affiliated money market funds 6,459
- -------------------------------------------------------------------------------
Interest 10,802
- -------------------------------------------------------------------------------
Total investment income 1,557,420
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 742,919
- -------------------------------------------------------------------------------
Administrative services fees 284,311
- -------------------------------------------------------------------------------
Custodian fees 37,410
- -------------------------------------------------------------------------------
Distribution fees-Series II 17
- -------------------------------------------------------------------------------
Transfer agent fees 8,966
- -------------------------------------------------------------------------------
Trustees' fees and retirement benefits 12,469
- -------------------------------------------------------------------------------
Other 113,185
- -------------------------------------------------------------------------------
Total expenses 1,199,277
- -------------------------------------------------------------------------------
Less:Fees waived and expenses reimbursed (2,454)
- -------------------------------------------------------------------------------
Net expenses 1,196,823
- -------------------------------------------------------------------------------
Net investment income 360,597
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities 5,342,026
- -------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment
securities (2,081,386)
- -------------------------------------------------------------------------------
Net gain from investment securities 3,260,640
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 3,621,237
- -------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CORE STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 360,597 $ 821,344
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 5,342,026 4,572,734
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (2,081,386) 15,106,971
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,621,237 20,501,049
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (822,681) (1,157,473)
- ---------------------------------------------------------------------------------------------------------------------------------
Series II (92) --
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (822,773) (1,157,473)
- ---------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (16,092,813) (5,671,282)
- ---------------------------------------------------------------------------------------------------------------------------------
Series II 10,092 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (16,082,721) (5,671,282)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (13,284,257) 13,672,294
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 109,203,171 95,530,877
- ---------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $355,507 and $813,907, respectively) $ 95,918,914 $109,203,171
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CORE STOCK FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Core Stock Fund, formerly INVESCO VIF-Core Equity Fund, (the "Fund")
is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust
is a Delaware statutory trust registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end series management investment
company consisting of twenty-eight separate portfolios. The Fund currently
offers two classes of shares, Series I and Series II, both of which are offered
to insurance company separate accounts funding variable annuity contracts and
variable life insurance policies ("variable products"). Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. Current Securities and Exchange Commission ("SEC")
guidance, however, requires participating insurance companies offering separate
accounts to vote shares proportionally in accordance with the instructions of
the contract owners whose investments are funded by shares of each portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. On April 30, 2004, the Fund was restructured from a separate
series of INVESCO Variable Investment Funds, Inc. to a new series portfolio of
the Trust.
The Fund's investment objective is to seek a high total return through growth
and current income. Each company listed in the Schedule of Investments is
organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished by
independent pricing services or market makers. Each security reported on the
NASDAQ National Market System is valued at the NASDAQ Official Closing Price
("NOCP") as of the close of the customary trading session on the valuation
date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
AIM V.I. CORE STOCK FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date. Bond premiums and
discounts are amortized and/or accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from, (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee based on the annual rate of 0.75% of the Fund's
average daily net assets. For the period May 1, 2004 through December 31, 2004,
the Fund paid advisory fees to AIM of $478,056. Prior to May 1, 2004, the Trust
had an investment advisory agreement with INVESCO Funds Group, Inc. ("IFG").
For the period January 1, 2004 through April 30, 2004, the Fund paid advisory
fees under similar terms to IFG of $264,863. Effective January 1, 2005 through
December 31, 2009, AIM has contractually agreed to waive advisory fees to the
extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.695% of the
first $250 million, plus 0.67% of the next $250 million, plus 0.645% of the
next $500 million, plus 0.62% of the next $1.5 billion, plus 0.595% of the next
$2.5 billion, plus 0.57% of the next $2.5 billion, plus 0.545% of the next $2.5
billion, plus 0.52% of the Fund's average daily net assets in excess of $10
billion. AIM has entered into a sub-advisory agreement with INVESCO
Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 40% of the fee
paid by the Fund to AIM.
AIM V.I. CORE STOCK FUND
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of each Series to 1.30% of average daily net
assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit total
annual operating expenses (excluding certain items discussed below) of each
Series to 1.15% of average daily net assets. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits
are in the form of credits that the Fund receives from banks where the Fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the Fund. AIM did
not waive fees and/or reimburse expenses during the period under this expense
limitation. Further, AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from the affiliated
money market funds on investments by the Fund in such affiliated money market
funds. Voluntary fee waivers or reimbursements may be modified or discontinued
at any time upon consultation with the Board of Trustees without further notice
to investors. For the year ended December 31, 2004, AIM waived fees of $1,501.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $953 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $187,420, of which AIM retained $33,470 for services
provided by AIM. Prior to May 1, 2004, the Fund had an administrative services
agreement with IFG. Pursuant to such agreement for the period January 1, 2004
through April 30, 2004, under similar terms, IFG was paid $96,891 for such
services, of which IFG retained $8,603 for services provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $8,966.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit total annual fund operating expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets, through April 30, 2006. AIM Distributors did
not reimburse fees during the period under this expense limitation. Pursuant to
the Plan, for the period April 30, 2004 (date sales commenced) through December
31, 2004, the Series II shares paid $17.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI, INVESCO and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2003 AT COST FROM SALES (DEPRECIATION) 12/31/2004 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
Premier Portfolio $1,791,903 $15,080,691 $(16,872,594) $ -- $ -- $6,459 $ --
- ---------------------------------------------------------------------------------------------------------
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $1,974
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. CORE STOCK FUND
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31,
2004 and 2003 was as follows:
2004 2003
-----------------------------------------------------------
Distributions paid from ordinary income $822,773 $1,157,473
-----------------------------------------------------------
Tax Components of Net Assets:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
--------------------------------------------------
Undistributed ordinary income $ 360,089
--------------------------------------------------
Unrealized appreciation--investments 7,275,807
--------------------------------------------------
Temporary book/tax differences (10,132)
--------------------------------------------------
Capital loss carryforward (10,118,188)
--------------------------------------------------
Shares of beneficial interest 98,411,338
--------------------------------------------------
Total net assets $ 95,918,914
--------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales and
return of capital distributions on certain securities.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $5,312,323 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD
--------------------------------------------
December 31, 2010 $10,118,188
--------------------------------------------
Total capital loss carryforward $10,118,188
--------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $39,839,762 and $55,134,340, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 9,807,055
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,531,248)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 7,275,807
-------------------------------------------------------------------------
Cost of investments for tax purposes is $87,952,317.
AIM V.I. CORE STOCK FUND
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of organizational
expenses and differing book/tax treatment of certain return of capital
distributions, on December 31, 2004, undistributed net investment income was
increased by $3,776, undistributed net realized gain (loss) was increased by
$2,762 and shares of beneficial interest decreased by $6,538. This
reclassification had no effect on the net assets of the Fund.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
- ----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2004 2003
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------
Sold:
- ----------------------------------------------------------------------------------------
Series I 389,317 $ 6,962,451 798,683 $ 12,750,696
- ----------------------------------------------------------------------------------------
Series II/(b)/ 577 10,000 -- --
- ----------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
- ----------------------------------------------------------------------------------------
Series I 44,638 822,681 66,598 1,157,473
- ----------------------------------------------------------------------------------------
Series II/(b)/ 5 92 -- --
- ----------------------------------------------------------------------------------------
Reacquired:
- ----------------------------------------------------------------------------------------
Series I (1,349,682) (23,877,945) (1,237,009) (19,579,451)
- ----------------------------------------------------------------------------------------
(915,145) $(16,082,721) (371,728) $ (5,671,282)
- ----------------------------------------------------------------------------------------
/(a)/There are four shareholders that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 82% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by these shareholders are also
owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.91 $ 14.77 $ 18.58 $ 20.71 $ 21.01
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09/(a)/ 0.13 0.21 0.20 0.23
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.67 3.20 (3.76) (2.06) 0.72
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.76 3.33 (3.55) (1.86) 0.95
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.16) (0.19) (0.26) (0.21) (0.02)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.06) (1.23)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.16) (0.19) (0.26) (0.27) (1.25)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.51 $ 17.91 $ 14.77 $ 18.58 $ 20.71
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 4.24% 22.60% (19.11)% (8.97)% 4.87%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $95,908 $109,203 $95,531 $133,754 $126,683
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.21%/(c)/ 1.10% 1.12% 1.09% 1.08%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.36%/(a)(c)/ 0.82% 0.99% 1.27% 1.37%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 40% 93% 49% 29% 69%
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/Net investment income per share and the ratio of net investment income to
average net assets include a special cash dividend received of $3.00 per
share owned of Microsoft Corp. On December 2, 2004. Net investment income
per share and the ratio of net investment to average net assets excluding
the special dividend are $0.04 and 0.08%, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $99,049,029.
AIM V.I. CORE STOCK FUND
NOTE 10--FINANCIAL HIGHLIGHTS (continued)
SERIES II
-----------------------------------------------------------------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
--------------
Net asset value, beginning of period $17.33
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.11/(a)/
-----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.20
-----------------------------------------------------------------------------
Total from investment operations 1.31
-----------------------------------------------------------------------------
Less dividends from net investment income (0.16)
-----------------------------------------------------------------------------
Net asset value, end of period $18.48
-----------------------------------------------------------------------------
Total return/(b)/ 7.56%
-----------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11
-----------------------------------------------------------------------------
Ratio of expenses to average net assets 1.45%/(c)(d)/
-----------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.12%/(a)(c)/
-----------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 40%
-----------------------------------------------------------------------------
/(a)/Net investment income per share and the ratio of net investment income to
average net assets include a special cash dividend received of $3.00 per
share owned of Microsoft Corp. On December 2, 2004. Net investment income
per share and the ratio of net investment to average net assets excluding
the special dividend are $0.06 and (0.16)%, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
/(c)/Ratios are annualized and based on average daily net assets of $10,144.
/(d)/After fee waivers and/or reimbursements. Ratio of expenses to average net
assets prior to fee waivers and/or reimbursements was 1.46%
/(e)/Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring
AIM V.I. CORE STOCK FUND
NOTE 11--LEGAL PROCEEDINGS (continued)
compliance and managing the process by which proposed management fees to be
charged the AIM Funds are negotiated. Also, commencing in 2008 and not less
than every fifth calendar year thereafter, the AIM Funds will hold shareholder
meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the
AIM V.I. CORE STOCK FUND
NOTE 11--LEGAL PROCEEDINGS (continued)
Federal and state securities laws; (ii) violation of various provisions of
ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of contract. These
lawsuits were initiated in both Federal and state courts and seek such remedies
as compensatory damages; restitution; injunctive relief; disgorgement of
management fees; imposition of a constructive trust; removal of certain
directors and/or employees; various corrective measures under ERISA; rescission
of certain Funds' advisory agreements; interest; and attorneys' and experts'
fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. CORE STOCK FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM V.I. Core Stock Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Core Stock Fund, formerly
known as INVESCO VIF - Core Equity Fund, (one of the funds constituting AIM
Variable Insurance Funds, formerly known as INVESCO Variable Investment Funds,
Inc., hereafter referred to as the "Fund") at December 31, 2004, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. CORE STOCK FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Core Equity Fund (now known as
AIM V.I. Core Stock Fund ("Fund"), an investment portfolio of INVESCO Variable
Investment Funds, Inc., ("Company"), (now known as AIM Variable Insurance
Funds, a Delaware statutory trust, was held April 2, 2004. The meeting was held
for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
VOTES WITHHELD/
MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------
(2) Approval of a new Investment
Advisory Agreement with A I M
Advisors, Inc...................... 4,139,470 128,800 223,262
(3) Approval of a new Sub-Advisory
Agreement between A I M Advisors,
Inc. and INVESCO Institutional
(N.A.), Inc........................ 4,077,678 125,211 288,643
(4)* Approval of an Agreement and Plan
of Reorganization to redomesticate
each series portfolio of Company
as a new series portfolio of AIM
Variable Insurance Funds, an
existing Delaware statutory trust.. 88,123,016 3,299,467 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V.I. CORE STOCK FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, (registered investment company);
including the Boss Group Ltd. (private Annuity and Life Re (Holdings),
investment and management) and Magellan Ltd. (insurance company)
Insurance Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. CORE STOCK FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group,
Trustee (California) Inc.
Formerly: Associate Justice of the
California Court of Appeals
- ------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- ------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Other Officers
- ------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
SUB-ADVISOR
INVESCO Institutional (N.A.), Inc.
National Asset Management Division
The Aegon Center
400 West Market Street, Suite 2500
Louisville, KY 40202
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. CORE STOCK FUND
AIM V.I. DYNAMICS FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-DYNAMICS FUND
WAS RENAMED AIM V.I. DYNAMICS FUND.
AIM V.I. DYNAMICS FUND seeks to
provide long term capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. DYNAMICS FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Stocks, as measured by most domestic market indexes, rallied in the fourth
quarter of 2004. The market upswing, combined with strong stock selection,
enabled the fund to post double-digit returns for the year.
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 13.34%
Series II Shares 13.07
S&P 500 Index (Broad Market Index) 10.87
Russell Midcap --registered trademark--
Growth Index (Style-specific Index) 15.48
Lipper Mid-Cap Growth Fund Index
(Peer Group Index) 14.03
Source: Lipper, Inc.
================================================================================
For the year, mid-cap stocks generally outperformed large-cap stocks. The
fund's focus on mid-cap stocks helped it outperform the large-cap oriented S&P
500 Index. It lagged the Russell Midcap Growth Index because of an overweight
position in information technology and the underperformance of its stock
selections in this sector. Additionally, the fund's holdings in health care
generally underperformed those of the index, and its underweight position in
consumer staples and utilities--it had no holdings in utilities at year
end--hurt its performance relative to the benchmark. We have not typically found
companies in utilities that exhibit the growth characteristics we seek in
selecting stocks.
During the reporting period, mid-cap value stocks generally outperformed
mid-cap growth stocks. The fund's emphasis on attractively priced growth stocks
helped it to track the performance of its Lipper peer group index.
HOW WE INVEST
The fund's current management team assumed its duties effective July 16, 2004.
We continued to use a bottom-up approach for investing, selecting growth stocks
based on an analysis of individual companies. However, we have worked to reduce
the large-cap exposure of the fund and have placed slightly heavier emphasis on
selecting growth stocks with attractive valuations. Our goal is to produce
consistent returns over the long-term by adhering to our investment process in
all market environments.
Our investment process involves:
.. Identifying mid-capitalization companies that we believe have sustainable
revenue and earnings growth and that have stock prices which are low relative to
their projected growth rates;
.. Applying fundamental research to identify stocks of companies with large
potential markets, cash-generating business models, improving balance sheets and
solid management teams;
.. Using a variety of valuation techniques to determine target buy prices and a
stock's valuation upside and downside potential.
The resulting portfolio contains both "core holdings" that are industry
leaders serving growing, non-cyclical markets, as well as "earnings momentum"
holdings that are driven by near-term catalysts that may lead to rapid sales or
earnings growth.
We consider selling a stock if a company's fundamentals deteriorate, a
stock's price reaches our valuation target or we find a more attractive
investment option.
MARKET CONDITIONS AND YOUR FUND
Stocks, as measured by the performance of the S&P 500 Index, struggled for the
first three quarters of 2004, amid concerns about high oil prices, rising
interest rates and uncertainty surrounding the U.S. presidential election. The
index rallied as the election campaign drew to a close and continued to rise
through the end of the year.
Mid- and small-cap stocks made up more than 85% of the portfolio's
composition at the close of the reporting period. These two asset classes led
the market rally in the fourth quarter, and were the top performers for the
year, enhancing fund performance.
================================================================================
PORTFOLIO COMPOSITION
By sectors
1. Information Technology 22.0
2. Consumer Discretionary 19.3
3. Health Care 16.6
4. Industrials 13.5
5. Financials 13.0
6. Energy 5.5
7. Telecommunication Services 3.1
8. Materials 3.0
9. Consumer Staples 1.0
Money market funds plus other assets less liabilities 3.0
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Hilton Hotels Corp. 1.8%
2. VeriSign Inc. 1.7
3. Manpower Inc. 1.6
4. Polo Ralph Lauren Corp. 1.6
5. Starwood Hotels &
Resorts Worldwide, Inc. 1.6
6. Avaya Inc. 1.6
7. Shire Pharmaceuticals Group PLC-ADR
(United Kingdom) 1.6
8. Caremark Rx, Inc. 1.5
9. Royal Caribbean Cruises Ltd. (Liberia) 1.5
10. New Century Financial Corp. 1.5
================================================================================
================================================================================
TOP 10 INDUSTRIES*
1. Hotels, Resorts & Cruise Lines 5.0
2. Communications Equipment 4.6
3. Real Estate 4.4
4. Health Care Equipment 3.8
5. Diversified Commercial Services 3.6
6. Asset Management & Custody Banks 3.5
7. Pharmaceuticals 3.5
8. Application Software 3.4
9. Semiconductors 3.1
10. Wireless Telecommunication Services 3.1
TOTAL NET ASSETS $123.6 million
TOTAL NUMBER OF HOLDINGS* 100
================================================================================
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
2
AIM V.I. DYNAMICS FUND
The fund was favorably positioned to take advantage of this rally. Consumer
discretionary stocks, which had struggled for much of the year, recorded
double-digit returns during the fourth-quarter upswing, and the fund benefited
from its significant exposure to this sector. The fund also had relatively large
weightings in the health care and industrials sectors, which also performed well
for the fund. While industrials performed well for much of the year, health care
did not rally until the fourth quarter.
For the year, the sectors that contributed the most to fund performance
were consumer discretionary, industrials, health care and financials. We
observed that consumer discretionary rallied in conjunction with the holiday
shopping season. Industrials benefited from an improving economy, and health
care rallied after the uncertainty surrounding the election was dispelled.
Stocks that contributed positively to fund performance included Garmin, a
manufacturer of digital navigation products that uses global positioning system
technology to provide geographic location data, and Starwood Hotels & Resorts
Worldwide, one of the largest hotel and leisure companies. Both companies are
leaders in their respective industries, possess skilled management teams and
have healthy cash flows--qualities we seek in selecting stocks for the
portfolio. Additionally, we believe both stocks have upside potential. For
example, Garmin is experiencing increased demand for its existing products. In
our opinion, the company also has a strong new product pipeline.
Starwood Hotels has rebounded impressively after being adversely affected
by the September 11, 2001, terrorist attacks and the ensuing recession, which
greatly reduced travel. When hotel occupancy rates began to improve in 2004,
Starwood was one of the first companies to recover because it targets a
higher-end clientele. We believe the company could be positioned for further
growth as it may be able to benefit from a gradual increase in room rates in the
coming year.
Information technology was the only sector that detracted from performance.
The fund's technology holdings rallied in the fourth quarter, but not enough to
offset losses sustained during the first three quarters of the year. The fund's
lack of exposure to certain software and semiconductor stocks, which rebounded
strongly in the fourth quarter, detracted from performance.
Tech stocks that detracted from performance included Novell, which offers a
network server operating system that connects desktop computers to corporate
networks, and Veritas Software, a provider of data management software. Both
struggled in tandem with other information technology stocks. We still hold
Novell because we believe the company has attractive growth prospects and that
its stock is favorably priced. Veritas was in the portfolio when we took over
management of the fund, and we sold it because of the company's weak
fundamentals.
IN CLOSING
We are pleased to have provided positive returns for our investors for the year.
However, we are always striving to improve performance while adhering to the
fund's investment discipline, which focuses on the attractively priced stocks of
mid-cap companies with the potential to deliver sustainable earnings growth. We
appreciate your continued participation in AIM V.I. Dynamics Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but A I M Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
[RASPLICKA PHOTO]
PAUL J. RASPLICKA, Chartered Financial Analyst and senior portfolio manager, is
lead manager of AIM V.I. Dynamics Fund. Mr. Rasplicka began his investment
career in 1982. A native of Denver, Mr. Rasplicka is a magna cum laude graduate
of the University of Colorado at Boulder with a B.S. in business administration.
He received an M.B.A. from the University of Chicago. He is also a Chartered
Investment Counselor.
[CHAPMAN PHOTO]
MICHAEL CHAPMAN, Chartered Financial Analyst and portfolio manager, began his
investment career in 1995. He joined AIM in 2001 and is a manager of AIM V.I.
Dynamics Fund. Mr. Chapman has a B.S. in petroleum engineering and an M.A. in
energy and mineral resources from the University of Texas.
Assisted by the Small and Mid-Cap Growth Team
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
At any given time, the fund may be subject to sector risk, which means a certain
sector may underperform other sectors or the market as a whole. The fund is not
limited with respect to the sectors in which it can invest.
Investing in small- and mid-size companies involves risks not associated
with investing in more established companies, including business risk,
significant stock price fluctuations and illiquidity.
The fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
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 holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies. Securities of
Canadian issues and ADRs are not subject to the 25% limitation.
Portfolio turnover is greater than that of most funds, which may affect
performance.
3
AIM V.I. DYNAMICS FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs including management fees,
distribution and/or service fees (12b-l) and other Fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the fund and to compare these costs with ongoing costs of investing in other
mutual funds. The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period, July 1, 2004-December
31, 2004. The actual and hypothetical expenses in the examples below do not
represent the effect of any fees or other expenses assessed in connection with a
variable product; if they did, the expenses shown would be higher while the
ending account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the Fund's actual
return. The hypothetical account values and expenses may not be used to estimate
your actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (7/1/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1,083.70 $6.08 $1,019.30 $5.89
Series II 1,000.00 1,082.10 7.38 1,018.05 7.15
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004 to December 31, 2004 after actual expenses
and will differ from the hypothetical ending account value which is based
on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The actual cumulative return at net asset value for the period
July 1, 2004 to December 31, 2004 was 8.37% and 8.21% for Series I and
Series II shares, respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (1.16% and 1.41%
for Series I and Series II shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
================================================================================
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
4
AIM V.I. DYNAMICS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the early years before reinvested distributions
and compounding create the potential for the original investment to grow to very
large numbers. Had the chart used a linear scale along its vertical axis, you
would not be able to see as clearly the movements in the value of the fund and
the indexes during the fund's early years. We use a logarithmic scale in
financial reports of funds that have more than five years of performance
history.
Since the last reporting period, the fund has elected to use the S&P 500
Index as its broad-based market index since the S&P 500 Index is such a widely
recognized gauge of stock performance. The fund will no longer measure its
performance against the S&P Midcap 400 Index, the index published in previous
reports to shareholders. Because this is the first reporting period since we
have adopted the new index, SEC guidelines require that we compare the fund's
performance to both the old and the new index. The fund has also included a
style-specific index, the Russell Midcap Growth Index. The fund believes this
index more closely reflects the performance of the securities in which the fund
invests. In addition, the unmanaged Lipper Mid-Cap Growth Fund Index, which may
or may not include AIM V.I. Dynamics Fund, is included for comparison to a peer
group.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
Inception (8/22/97) 4.23%
5 Years -6.71
1 Year 13.34
Series II Shares
Inception 3.97%
5 Years -6.94
1 Year 13.07
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the
================================================================================
RESULTS OF A $10,000 INVESTMENT
8/22/97-12/31/04 Index data from 8/31/97
[MOUNTAIN CHART]
AIM V.I. Dynamics Lipper Mid-Cap Russell Midcap S&P 500 S&P MidCap 400
Date Fund-Series I Growth Fund Index Growth Index Index Index
---- ----------------- ----------------- -------------- ------- --------------
8/22/97 $10000 $10000 $10000 $10000 $10000
9/97 10610 10716 10506 10547 10575
12/97 10340 10187 10217 10850 10663
3/98 11889 11405 11437 12363 11837
6/98 12179 11283 11430 12773 11584
9/98 9749 9123 9522 11505 9908
12/98 12341 11490 12043 13953 12701
3/99 13549 11917 12454 14648 11891
6/99 14849 13350 13751 15679 13574
9/99 14412 13483 13063 14702 12434
12/99 19201 19960 18220 16888 14571
3/00 21985 22807 22068 17275 16420
6/00 21822 20819 20434 16816 15878
9/00 24047 21480 20949 16653 17807
12/00 18518 16740 16079 15351 17122
3/01 13240 12892 12046 13532 15277
6/01 14989 14655 13995 14323 17287
9/01 9864 11086 10104 12222 14424
12/01 12754 13213 12839 13528 17018
3/02 12316 12837 12612 13565 18162
6/02 9773 10919 10309 11749 16472
9/02 7942 9027 8538 9720 13746
12/02 8684 9451 9320 10539 14548
3/03 8633 9299 9319 10207 13903
6/03 10066 10942 11067 11778 16354
9/03 10554 11533 11859 12089 17432
12/03 11971 12799 13301 13560 19730
3/04 12297 13300 13944 13790 20730
6/04 12520 13475 14091 14027 20931
9/04 11972 12827 13481 13765 20491
12/04 $13568 $14595 $15360 $15035 $22983
Source: Lipper, Inc.
================================================================================
blended returns of the historical performance of the fund's Series II shares
since their inception and the restated historical performance of the fund's
Series I shares (for periods prior to inception of the Series II shares)
adjusted to reflect the higher Rule 12b-1 fees applicable to the Series II
shares. The inception date of the fund's Series II shares is 4/30/04.
The Series I and Series II shares invest in the same portfolio of
securities and will have substantially similar performance, except to the extent
that expenses borne by each class differ.
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or your financial advisor for the most
recent month-end performance. Performance figures reflect fund expenses,
reinvested distributions and changes in net asset value. Investment return and
principal value will fluctuate so that you may have a gain or loss when you sell
shares.
AIM V.I. Dynamics Fund, a series portfolio of AIM Variable Insurance Funds,
is currently offered through insurance companies issuing variable products. You
cannot purchase shares of the fund directly. Performance figures given represent
the fund and are not intended to reflect actual variable product values. They do
not reflect sales charges, expenses and fees assessed in connection with a
variable product. Sales charges, expenses and fees, which are determined by the
variable product issuers, will vary and will lower the total return.*
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P
500--registered trademark--Index) is an index of common stocks frequently used
as a general measure of U.S. stock market performance.
The unmanaged Standard & Poor's MidCap 400 Index (the S&P 400) represents
the performance of mid-capitalization stocks. The unmanaged Lipper Midcap Growth
Fund Index represents an average of the performance of the 30 largest
mid-capitalization growth funds tracked by Lipper, Inc., an independent mutual
fund performance monitor.
The unmanaged Russell Midcap--registered trademark--Growth Index is a
subset of the Russell Midcap--registered trademark--Index, which represents the
performance of the stocks of domestic mid-capitalization companies; the Growth
subset measures the performance of Russell Midcap companies with higher
price/book ratios and higher forecasted growth values.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
value for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
---------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-96.96%
ADVERTISING-0.94%
Omnicom Group Inc. 13,830 $ 1,166,146
---------------------------------------------------------
AIR FREIGHT & LOGISTICS-0.86%
Robinson (C.H.) Worldwide, Inc. 19,200 1,065,984
---------------------------------------------------------
APPAREL RETAIL-2.16%
Abercrombie & Fitch Co.-Class A 29,000 1,361,550
---------------------------------------------------------
Ross Stores, Inc. 45,300 1,307,811
---------------------------------------------------------
2,669,361
---------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-2.94%
Coach, Inc./(a)/ 28,700 1,618,680
---------------------------------------------------------
Polo Ralph Lauren Corp. 47,300 2,014,980
---------------------------------------------------------
3,633,660
---------------------------------------------------------
APPLICATION SOFTWARE-3.36%
Amdocs Ltd. (United Kingdom)/(a)/ 60,600 1,590,750
---------------------------------------------------------
Intuit Inc./(a)/ 26,000 1,144,260
---------------------------------------------------------
Mercury Interactive Corp./(a)/ 17,600 801,680
---------------------------------------------------------
NAVTEQ Corp./(a)/ 13,300 616,588
---------------------------------------------------------
4,153,278
---------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-3.46%
Investors Financial Services Corp. 24,900 1,244,502
---------------------------------------------------------
Legg Mason, Inc. 22,750 1,666,665
---------------------------------------------------------
T. Rowe Price Group Inc. 22,000 1,368,400
---------------------------------------------------------
4,279,567
---------------------------------------------------------
BIOTECHNOLOGY-2.71%
Genzyme Corp./(a)/ 18,400 1,068,488
---------------------------------------------------------
Gilead Sciences, Inc./(a)/ 25,500 892,245
---------------------------------------------------------
Invitrogen Corp./(a)/ 10,800 725,004
---------------------------------------------------------
Martek Biosciences Corp./(a)/ 13,100 670,720
---------------------------------------------------------
3,356,457
---------------------------------------------------------
BROADCASTING & CABLE TV-1.07%
Scripps Co. (E.W.) (The)-Class A 27,300 1,318,044
---------------------------------------------------------
CASINOS & GAMING-1.26%
Station Casinos, Inc. 28,400 1,552,912
---------------------------------------------------------
COMMUNICATIONS EQUIPMENT-4.56%
Avaya Inc./(a)/ 113,400 1,950,480
---------------------------------------------------------
Comverse Technology, Inc./(a)/ 60,500 1,479,225
---------------------------------------------------------
Corning Inc./(a)/ 69,200 814,484
---------------------------------------------------------
Juniper Networks, Inc./(a)/ 25,400 690,626
---------------------------------------------------------
Scientific-Atlanta, Inc. 21,300 703,113
---------------------------------------------------------
5,637,928
---------------------------------------------------------
MARKET
SHARES VALUE
-------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.90%
Storage Technology Corp./(a)/ 35,300 $ 1,115,833
-------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.69%
Chicago Bridge & Iron Co. N.V.-New York Shares
(Netherlands) 21,300 852,000
-------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.56%
PACCAR Inc. 8,600 692,128
-------------------------------------------------------------------------
CONSUMER ELECTRONICS-0.76%
Garmin Ltd. (Cayman Islands)/(b)/ 15,400 936,936
-------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-
2.82%
Alliance Data Systems Corp./(a)/ 29,500 1,400,660
-------------------------------------------------------------------------
DST Systems, Inc./(a)/ 18,200 948,584
-------------------------------------------------------------------------
Iron Mountain Inc./(a)/ 37,300 1,137,277
-------------------------------------------------------------------------
3,486,521
-------------------------------------------------------------------------
DEPARTMENT STORES-0.98%
Kohl's Corp./(a)/ 24,600 1,209,582
-------------------------------------------------------------------------
DIVERSIFIED BANKS-0.75%
Centennial Bank Holdings, Inc. (Acquired 12/27/04;
Cost $931,350)/(a)(c)(d)/ 88,700 931,350
-------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-3.61%
Apollo Group, Inc.-Class A/(a)/ 7,250 585,148
-------------------------------------------------------------------------
Career Education Corp./(a)/ 33,500 1,340,000
-------------------------------------------------------------------------
Cintas Corp. 25,500 1,118,430
-------------------------------------------------------------------------
Corrections Corp. of America/(a)/ 35,100 1,419,795
-------------------------------------------------------------------------
4,463,373
-------------------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-0.63%
Cooper Industries, Ltd.-Class A (Bermuda) 11,500 780,735
-------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-1.23%
Amphenol Corp.-Class A/(a)/ 41,500 1,524,710
-------------------------------------------------------------------------
EMPLOYMENT SERVICES-1.64%
Manpower Inc. 42,100 2,033,430
-------------------------------------------------------------------------
ENVIRONMENTAL SERVICES-1.81%
Republic Services, Inc. 39,200 1,314,768
-------------------------------------------------------------------------
Stericycle, Inc./(a)/ 20,000 919,000
-------------------------------------------------------------------------
2,233,768
-------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.84%
Dollar General Corp. 49,900 1,036,423
-------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-1.09%
Henry Schein, Inc./(a)/ 19,400 1,351,016
-------------------------------------------------------------------------
AIM V.I. DYNAMICS FUND
MARKET
SHARES VALUE
--------------------------------------------------------------------
HEALTH CARE EQUIPMENT-3.84%
INAMED Corp./(a)/ 15,300 $ 967,725
--------------------------------------------------------------------
Kinetic Concepts, Inc./(a)/ 19,900 1,518,370
--------------------------------------------------------------------
Nobel Biocare Holding A.G. (Switzerland)/(e)/ 5,200 937,204
--------------------------------------------------------------------
Waters Corp./(a)/ 28,200 1,319,478
--------------------------------------------------------------------
4,742,777
--------------------------------------------------------------------
HEALTH CARE SERVICES-2.63%
Caremark Rx, Inc./(a)/ 48,375 1,907,426
--------------------------------------------------------------------
Express Scripts, Inc./(a)/ 17,600 1,345,344
--------------------------------------------------------------------
3,252,770
--------------------------------------------------------------------
HEALTH CARE SUPPLIES-0.86%
Cooper Cos., Inc. (The) 15,000 1,058,850
--------------------------------------------------------------------
HOMEBUILDING-1.15%
Pulte Homes, Inc. 22,200 1,416,360
--------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-4.96%
Hilton Hotels Corp. 100,300 2,280,822
--------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia) 34,500 1,878,180
--------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 33,800 1,973,920
--------------------------------------------------------------------
6,132,922
--------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-0.95%
BJ's Wholesale Club, Inc./(a)/ 40,500 1,179,765
--------------------------------------------------------------------
INDUSTRIAL GASES-0.50%
Praxair, Inc. 14,100 622,515
--------------------------------------------------------------------
INDUSTRIAL MACHINERY-2.35%
Eaton Corp. 18,800 1,360,368
--------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 19,200 1,541,760
--------------------------------------------------------------------
2,902,128
--------------------------------------------------------------------
INSURANCE BROKERS-0.81%
Willis Group Holdings Ltd. (Bermuda) 24,200 996,314
--------------------------------------------------------------------
INTEGRATED OIL & GAS-0.99%
Murphy Oil Corp. 15,200 1,222,840
--------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-2.20%
Ask Jeeves, Inc./(a)/ 23,551 629,989
--------------------------------------------------------------------
VeriSign, Inc./(a)/ 62,300 2,088,296
--------------------------------------------------------------------
2,718,285
--------------------------------------------------------------------
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.92%
iShares Nasdaq Biotechnology Index Fund/(a)/ 15,100 1,138,540
--------------------------------------------------------------------
MANAGED HEALTH CARE-1.14%
Aetna Inc. 11,300 1,409,675
--------------------------------------------------------------------
MULTI-LINE INSURANCE-0.11%
Quanta Capital Holdings Ltd. (Bermuda)/(a)/ 14,800 136,456
--------------------------------------------------------------------
OFFICE ELECTRONICS-0.59%
Zebra Technologies Corp.-Class A/(a)/ 12,950 728,826
--------------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-2.05%
Halliburton Co. 34,000 $ 1,334,160
--------------------------------------------------------------------------
Smith International, Inc./(a)/ 22,100 1,202,461
--------------------------------------------------------------------------
2,536,621
--------------------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-0.99%
Apache Corp. 42 2,124
--------------------------------------------------------------------------
Talisman Energy Inc. (Canada) 45,200 1,218,592
--------------------------------------------------------------------------
1,220,716
--------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.48%
Williams Cos., Inc. (The) 112,600 1,834,254
--------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-0.95%
CapitalSource Inc./(a)/ 45,900 1,178,253
--------------------------------------------------------------------------
PHARMACEUTICALS-3.45%
MGI Pharma, Inc./(a)/ 34,000 952,340
--------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR
(United Kingdom) 60,400 1,929,780
--------------------------------------------------------------------------
Valeant Pharmaceuticals International 52,500 1,383,375
--------------------------------------------------------------------------
4,265,495
--------------------------------------------------------------------------
REAL ESTATE-4.38%
Aames Investment Corp. 109,400 1,170,580
--------------------------------------------------------------------------
KKR Financial Corp. (Acquired 08/05/04-12/21/04;
Cost $1,276,520)/(a)(c)/ 127,400 1,331,330
--------------------------------------------------------------------------
New Century Financial Corp. 28,800 1,840,608
--------------------------------------------------------------------------
People's Choice Financial Corp. (Acquired 12/21/04;
Cost $1,069,000)/(a)(c)(d)/ 106,900 1,069,000
--------------------------------------------------------------------------
5,411,518
--------------------------------------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT-1.12%
CB Richard Ellis Group, Inc.-Class A/(a)/ 41,200 1,382,260
--------------------------------------------------------------------------
REGIONAL BANKS-0.73%
Zions Bancorp. 13,300 904,799
--------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-1.68%
KLA-Tencor Corp./(a)/ 15,400 717,332
--------------------------------------------------------------------------
Novellus Systems, Inc./(a)/ 48,900 1,363,821
--------------------------------------------------------------------------
2,081,153
--------------------------------------------------------------------------
SEMICONDUCTORS-3.08%
Altera Corp./(a)/ 42,980 889,686
--------------------------------------------------------------------------
Microchip Technology Inc. 51,882 1,383,174
--------------------------------------------------------------------------
National Semiconductor Corp. 85,400 1,532,930
--------------------------------------------------------------------------
3,805,790
--------------------------------------------------------------------------
SPECIALIZED FINANCE-0.70%
Moody's Corp. 9,900 859,815
--------------------------------------------------------------------------
AIM V.I. DYNAMICS FUND
MARKET
SHARES VALUE
----------------------------------------------------
SPECIALTY CHEMICALS-2.54%
Ecolab Inc. 19,800 $ 695,574
----------------------------------------------------
Nalco Holding Co./(a)/ 53,300 1,040,416
----------------------------------------------------
Rohm & Haas Co. 31,700 1,402,091
----------------------------------------------------
3,138,081
----------------------------------------------------
SPECIALTY STORES-2.21%
Advance Auto Parts, Inc./(a)/ 22,500 982,800
----------------------------------------------------
Staples, Inc. 51,900 1,749,549
----------------------------------------------------
2,732,349
----------------------------------------------------
SYSTEMS SOFTWARE-1.00%
Novell, Inc./(a)/ 182,500 1,231,875
----------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.54%
CDW Corp. 10,000 663,500
----------------------------------------------------
TRADING COMPANIES &
DISTRIBUTORS-1.04%
Fastenal Co. 20,900 1,286,604
----------------------------------------------------
TRUCKING-0.34%
Sirva Inc./(a)/ 21,600 415,152
----------------------------------------------------
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-3.05%
American Tower Corp.-Class A/(a)/ 87,900 $ 1,617,360
- -------------------------------------------------------------------------------
Nextel Partners, Inc.-Class A/(a)/ 67,950 1,327,743
- -------------------------------------------------------------------------------
SpectraSite, Inc./(a)/ 14,300 827,970
- -------------------------------------------------------------------------------
3,773,073
- -------------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $101,024,897) 119,861,473
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS-2.70%
Premier Portfolio (Cost $3,341,046)/(f)(g)/ 3,341,046 3,341,046
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.66% (excluding investments
purchased with cash collateral from securities loaned)
(Cost $104,365,943) 123,202,519
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.46%
Premier Portfolio/(f)(g)(h)/ 561,100 561,100
- -------------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned) (Cost $561,100) 561,100
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.12% (Cost $104,927,043) 123,763,619
- -------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.12%) (143,841)
- -------------------------------------------------------------------------------
NET ASSETS-100.00% $123,619,778
- -------------------------------------------------------------------------------
Investment Abbreviations:
ADR- American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$3,331,680, which represented 2.70% of the Fund's Net Assets. These
securities are considered to be illiquid.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at December 31, 2004 was $2,000,350, which represented 1.62% of
the Fund's Total Investments. See Note 1A.
(e) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 0.76% of the
Fund's Total Investments. See Note 1A.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
(h) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions upon
the borrower's return of the securities loaned. See Note 7.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DYNAMICS FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $101,024,897)* $ 119,861,473
- ------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $3,902,146) 3,902,146
- ------------------------------------------------------------------------------------
Total investments (cost $104,927,043) 123,763,619
- ------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $71) 75
- ------------------------------------------------------------------------------------
Receivables for:
Investments sold 628,324
- ------------------------------------------------------------------------------------
Fund shares sold 14,594
- ------------------------------------------------------------------------------------
Dividends 104,397
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 9,883
- ------------------------------------------------------------------------------------
Total assets 124,520,892
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 89,203
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 13,079
- ------------------------------------------------------------------------------------
Collateral upon return of securities loaned 561,100
- ------------------------------------------------------------------------------------
Accrued administrative services fees 191,961
- ------------------------------------------------------------------------------------
Accrued distribution fees - Series II 7
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 2,645
- ------------------------------------------------------------------------------------
Accrued operating expenses 43,119
- ------------------------------------------------------------------------------------
Total liabilities 901,114
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 123,619,778
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 210,994,399
- ------------------------------------------------------------------------------------
Undistributed net investment income (loss) (10,751)
- ------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (106,200,450)
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 18,836,580
- ------------------------------------------------------------------------------------
$ 123,619,778
- ------------------------------------------------------------------------------------
NET ASSETS:
Series I $ 123,608,623
- ------------------------------------------------------------------------------------
Series II $ 11,155
- ------------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,265,026
- ------------------------------------------------------------------------------------
Series II 837.5
- ------------------------------------------------------------------------------------
Series I:
Net asset value per share $ 13.34
- ------------------------------------------------------------------------------------
Series II:
Net asset value per share $ 13.32
- ------------------------------------------------------------------------------------
* At December 31, 2004, securities with an aggregate market value of $550,602
were on loan to brokers.
Statement of Operations
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $8,340) $ 652,075
- --------------------------------------------------------------------------------
Dividends from affiliated money market funds (including securities
lending income of $10,125**) 60,960
- --------------------------------------------------------------------------------
Total investment income 713,035
- --------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,032,136
- --------------------------------------------------------------------------------
Administrative services fees 381,088
- --------------------------------------------------------------------------------
Custodian fees 41,121
- --------------------------------------------------------------------------------
Distribution fees - Series II 17
- --------------------------------------------------------------------------------
Transfer agent fees 12,350
- --------------------------------------------------------------------------------
Trustees' fees and retirement benefits 14,153
- --------------------------------------------------------------------------------
Other 93,254
- --------------------------------------------------------------------------------
Total expenses 1,574,119
- --------------------------------------------------------------------------------
Less:Fees waived and expenses reimbursed (2,625)
- --------------------------------------------------------------------------------
Net expenses 1,571,494
- --------------------------------------------------------------------------------
Net investment income (loss) (858,459)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 28,099,321
- --------------------------------------------------------------------------------
Foreign currencies 1,312
- --------------------------------------------------------------------------------
28,100,633
- --------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (12,380,354)
- --------------------------------------------------------------------------------
Foreign currencies 4
- --------------------------------------------------------------------------------
(12,380,350)
- --------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 15,720,283
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 14,861,824
- --------------------------------------------------------------------------------
** Dividends from affiliated money market funds are net of income rebate paid
to securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DYNAMICS FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004 2003
- ------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (858,459) $ (952,962)
- ------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 28,100,633 14,654,533
- ------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities
and foreign currencies (12,380,350) 29,147,353
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 14,861,824 42,848,924
- ------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (60,521,334) 10,285,394
- ------------------------------------------------------------------------------------------------------------
Series II 10,000 --
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (60,511,334) 10,285,394
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (45,649,510) 53,134,318
- ------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 169,269,288 116,134,970
- ------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(10,751)
and $(5,658), respectively) $123,619,778 $169,269,288
- ------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Dynamics Fund, formerly INVESCO VIF-Dynamics Fund, (the "Fund") is a
series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a
Delaware statutory trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end series management investment
company consisting of twenty-eight separate portfolios. The Fund currently
offers two classes of shares, Series I and Series II, both of which are offered
to insurance company separate accounts funding variable annuity contracts and
variable life insurance policies ("variable products"). Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. Current Securities and Exchange Commission ("SEC")
guidance, however, requires participating insurance companies offering separate
accounts to vote shares proportionally in accordance with the instructions of
the contract owners whose investments are funded by shares of each portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. On April 30, 2004, the Fund was restructured from a separate
series of INVESCO Variable Investment Funds, Inc. to a new series portfolio of
the Trust.
The Fund's investment objective is to seek long-term capital growth. Each
company listed in the Schedule of Investments is organized in the United States
of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
AIM V.I. DYNAMICS FUND
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from, (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
H. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
AIM V.I. DYNAMICS FUND
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.75% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $601,391. Prior to May 1, 2004,
the Trust had an investment advisory agreement with INVESCO Funds Group, Inc.
("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund paid
advisory fees under similar terms to IFG of $430,745. Effective January 1, 2005
through June 30, 2006, AIM has contractually agreed to waive advisory fees to
the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.745% of
the first $250 million, plus 0.73% of the next $250 million, plus 0.715% of the
next $500 million, plus 0.70% of the next $1.5 billion, plus 0.685% of the next
$2.5 billion, plus 0.67% of the next $2.5 billion, plus 0.655% of the next $2.5
billion, plus 0.64% of the Fund's average daily net assets in excess of $10
billion. AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of each Series to 1.30% of average
daily net assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.15% of average daily net assets. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the total annual
fund operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan
fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales;
(v) extraordinary items (these are expenses that are not anticipated to arise
from the Fund's day-to-day operations), or items designated as such by the
Fund's Board of Trustees; (vi) expenses related to a merger or reorganization,
as approved by the Fund's Board of Trustees; and (vii) expenses that the Fund
has incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits
are in the form of credits that the Fund receives from banks where the Fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the Fund. AIM did
not waive fees and/or reimburse expenses during the period under this expense
limitation. Further, AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from the affiliated
money market funds on investments by the Fund in such affiliated money market
funds (excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the year
ended December 31, 2004, AIM waived fees of $2,585.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $40 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $225,585, of which AIM retained $33,470 for services
provided by AIM. Prior to May 1, 2004, the Fund had an administrative services
agreement with IFG. For the period January 1, 2004 through April 30, 2004,
under similar terms, IFG was paid $155,503 for such services, of which IFG
retained $11,921 for services provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $12,350.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit total annual Fund operating expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets, through April 30, 2006. AIM Distributors did
not reimburse fees during the period under this expense limitation. Pursuant to
the Plan, for the period April 30, 2004 (date sales commenced) through December
31, 2004, the Series II shares paid $17.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to
be affiliated. The tables below show the transactions in and earnings from
investments in an affiliated money market fund for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------
Premier Portfolio $3,303,049 $109,156,286 $(109,118,289) $ -- $3,341,046 $50,835 $ --
- -----------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------
Premier Portfolio $ -- $ 14,592,344 $ (14,031,244) $ -- $ 561,100 $10,125 $ --
- -----------------------------------------------------------------------------------------------------------
TOTAL $3,303,049 $123,748,630 $(123,149,533) $ -- $3,902,146 $60,960 $ --
- -----------------------------------------------------------------------------------------------------------
* Dividend income is net of income rebate paid to securities lending
counterparties.
AIM V.I. DYNAMICS FUND
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures each transaction is effected at the current market
price. Pursuant to these procedures, during the year ended December 31, 2004,
the Fund engaged in purchases and sales of securities of $403,556 and $481,714,
respectively.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,048
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
During the year ended December 31, 2004, the Fund had interfund borrowings for
the number of days the borrowings were outstanding, in the amount of $4,957,500
with a weighted average interest rate of 1.21% and interest expense of $653.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan. During the year ended December 31, 2004,
the Fund did not borrow under the uncommitted unsecured revolving credit
facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2004, securities with an aggregate value of $550,602 were on
loan to brokers. The loans were secured by cash collateral of $561,100 received
by the Fund and subsequently invested in an affiliated money market fund. For
the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $10,125 for
securities lending transactions.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
---------------------------------------------------
Unrealized appreciation--investments $ 17,866,150
---------------------------------------------------
Temporary book/tax differences (8,758)
---------------------------------------------------
Capital loss carryforward (105,230,019)
---------------------------------------------------
Post-October capital loss deferral (1,994)
---------------------------------------------------
Shares of beneficial interest 210,994,399
---------------------------------------------------
Total net assets $ 123,619,778
---------------------------------------------------
AIM V.I. DYNAMICS FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the deferral of loss on certain option contracts. The tax basis
unrealized appreciation (depreciation) on investments amount includes
appreciation on foreign currencies $4.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses the deferral of post-October currency losses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $23,097,256 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
December 31, 2009 $ 34,604,090
---------------------------------------------
December 31, 2010 70,625,929
---------------------------------------------
Total capital loss carryforward $105,230,019
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $162,022,334 and $224,439,291, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $19,301,616
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,435,470)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $17,866,146
-------------------------------------------------------------------------
Cost of investments for tax purposes is $105,897,473.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
non-deductible reorganization expenses and foreign currency transactions, on
December 31, 2004, undistributed net investment income (loss) was increased by
$853,366, undistributed net realized gain (loss) was decreased by $1,312 and
shares of beneficial interest decreased by $852,054. This reclassification had
no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2004 2003
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
Sold:
Series I 3,083,564 $ 37,510,555 43,895,013 $ 426,395,783
-----------------------------------------------------------------------
Series II/(b)/ 838 10,000 -- --
-----------------------------------------------------------------------
Reacquired:
Series I (8,198,618) (98,031,889) (43,111,961) (416,110,389)
-----------------------------------------------------------------------
Series II/(b)/ -- -- -- --
-----------------------------------------------------------------------
(5,114,216) $(60,511,334) 783,052 $ 10,285,394
-----------------------------------------------------------------------
/(a)/There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 83% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor are parties to participation agreements with these
entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities, which
are considered to be related to the Fund, for providing services to the
Fund, AIM and/or AIM affiliates including but not limited to services such
as, securities brokerage, third party record keeping and account servicing
and administrative services. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by these shareholders are
also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
AIM V.I. DYNAMICS FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.77 $ 8.54 $ 12.54 $ 18.21
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.07) (0.00)/(a)/ (0.00)/(a)/
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.66 3.30 (4.00) (5.67)
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.57 3.23 (4.00) (5.67)
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.34 $ 11.77 $ 8.54 $ 12.54
- --------------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 13.34% 37.82% (31.90)% (31.14)%
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $123,609 $169,269 $116,135 $174,716
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.14%/(c)/ 1.14%/(d)/ 1.12% 1.08%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.62)%/(c)/ (0.70)% (0.75)% (0.54)%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 64% 129% 110% 62%
- --------------------------------------------------------------------------------------------------------------------------------
---------
---------
2000
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.90
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(a)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (0.67)
- ---------------------------------------------------------------------------------
Total from investment operations (0.67)
- ---------------------------------------------------------------------------------
Less distributions from net realized gains (0.02)
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 18.21
- ---------------------------------------------------------------------------------
Total return/(b)/ (3.55)%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $170,610
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.09%
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.24)%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 58%
- ---------------------------------------------------------------------------------
/(a)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.08), $(0.06) and
$(0.03) for the years ended December 31, 2002, 2001 and 2000, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
/(c)/Ratios are based on average daily net assets of $137,611,312.
/(d)/After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements was
1.15% for the year ended December 31, 2003.
SERIES II
----------------------
APRIL 30, 2004
(DATE SALES COMMENCED)
TO DECEMBER 31, 2004
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $11.94
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)
- ----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.45
- ----------------------------------------------------------------------------------
Total from investment operations 1.38
- ----------------------------------------------------------------------------------
Net asset value, end of period $13.32
- ----------------------------------------------------------------------------------
Total return/(a)/ 11.56%
- ----------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.40%/(b)/
- ----------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.88)%/(b)/
- ----------------------------------------------------------------------------------
Portfolio turnover rate/(c)/ 64%
- ----------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
/(b)/Ratios are annualized and based on average daily net assets of $10,038.
/(c)/Not annualized for periods less than one year.
AIM V.I. DYNAMICS FUND
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
AIM V.I. DYNAMICS FUND
NOTE 13--LEGAL PROCEEDINGS (continued)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the Federal and state securities laws; (ii) violation
of various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv)
breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; injunctive
relief; disgorgement of management fees; imposition of a constructive trust;
removal of certain directors and/or employees; various corrective measures
under ERISA; rescission of certain Funds' advisory agreements; interest; and
attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
AIM V.I. DYNAMICS FUND
NOTE 13--LEGAL PROCEEDINGS (continued)
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. DYNAMICS FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM V.I. Dynamics Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Dynamics Fund, formerly
known as INVESCO VIF-Dynamics Fund, (one of the funds constituting AIM Variable
Insurance Funds, formerly known as INVESCO Variable Investment Funds, Inc.,
hereafter referred to as the "Fund") at December 31, 2004, 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 for each of the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. DYNAMICS FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Dynamics Fund (now known as
AIM V.I. Dynamics Fund), ("Fund"), an investment portfolio of INVESCO Variable
Investment Funds, Inc. ("Company"), (now known as AIM Variable Insurance
Funds), a Delaware statutory trust, was held April 2, 2004. The meeting was
held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
MATTER VOTES FOR
- -------------------------------------------------------------------------------------------------------------------------------
(2). Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 10,238,915
(3). Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 10,218,681
(4)* Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 88,123,016
VOTES
MATTER AGAINST
- -------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 285,350
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 279,887
Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 3,299,467
WITHHELD/
MATTER ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 734,044
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 759,741
Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V.I. DYNAMICS FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Interested Persons
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 Trustee 2003 Director, President and Chief Executive None
and Executive Vice President Officer, A I M Management Group Inc.
(financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris,
company) Inc. (unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & company)
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, (Chairman) (registered
including the Boss Group Ltd. (private investment company);
investment and management) and Magellan Annuity and Life Re
Insurance Company (Holdings), Ltd. (insurance
company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund
company) and Texana Timber LP (non-profit)
(sustainable forestry company)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. DYNAMICS FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered investment
company)
- -----------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------
Other Officers
- -----------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- -----------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio
Manager, INVESCO Institutional (N.A.),
Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
AIM V.I. DYNAMICS FUND
AIM V.I. FINANCIAL SERVICES FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-FINANCIAL SERVICES FUND
WAS RENAMED AIM V.I. FINANCIAL SERVICES FUND.
AIM V.I. FINANCIAL SERVICES FUND seeks to provide capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. FINANCIAL SERVICES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
On October 1,2004, the fund's portfolio management team was changed with the
objective of improving long-term results. The fund's new portfolio managers are
Michael J. Simon and Meggan M. Walsh. Each brings 15 years of investing and
financial sector experience to the fund. For the year, AIM V.I. Financial
Services Fund produced a solid return but trailed its benchmark indexes.
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 8.68%
Series II Shares 8.44
S&P 500 Index (Broad Market Index) 10.87
S&P 500 Financials Index
(Style-specific Index) 10.89
Lipper Financial Services Fund Index
(Peer Group Index) 13.96
Source: Lipper, Inc.
================================================================================
Financial stocks performed in line with the overall market as evidenced by
the similar returns of the S&P 500 Index and the S&P 500 Financials Index during
the period. Since AIM V.I. Financial Services Fund focuses its investments on
financial companies, we suggest that it is most important to compare short-term
results, such as one year, to a benchmark comprised of financial companies such
as the S&P 500 Financials Index. Over multi-year holding periods, we believe
comparisons to both a financial services index and a broad market index are
important. The fund underperformed the S&P 500 Financials Index largely because
of lower industry weightings in regional banks and real estate investment
trusts, which were among the better performing financial industries in 2004.
The Lipper Financial Services Fund Index represents the performance of
mutual funds that invest in financial services companies. It includes funds with
a variety of mandates including diversified U.S. financial funds, narrowly
focused sub-industry funds, and global funds. AIM V.I. Financial Services Fund
underperformed this Lipper group largely because of strong performance by funds
focused on small and mid-size regional banks and global funds.
OUR INVESTMENT PHILOSOPHY AND PROCESS
Because we assumed management of the fund on October 1, we wanted to describe
our investment process and philosophy. Our objective is to create wealth by
maintaining a long-term investment horizon and investing in companies that are
significantly undervalued on an absolute basis or that exhibit superior capital
discipline. Our investment universe consists of approximately 250-300 publicly
traded companies that derive at least half their revenues or earnings from
financial services activities.
We focus our investments in the two primary investment opportunities that
have historically resulted in superior investment performance within the
financial sector:
1. Common stocks of companies trading at a significant discount to
intrinsic value because of excessive short-term investor pessimism.
2. Common stocks of reasonably valued companies that demonstrate superior
capital discipline by returning excess capital to shareholders via dividends or
share repurchases.
To purchase a stock, we require a minimum of 50% upside potential to our
estimate of intrinsic value over a two- to three-year investment horizon or the
demonstrated ability and willingness to return growing excess capital to
shareholders in the form of dividends or share repurchases. We maintain a
proprietary database of intrinsic value estimates for current and prospective
investments and utilize a customized multifactor quality screen. Purchase
candidates are subject to exhaustive fundamental analysis and an assessment of
portfolio suitability, including analysis such as:
. Adjustment for economic distortions permitted by generally accepted
accounting principles (GAAP).
. An estimate of sustainable growth and marginal return on economic equity.
. A discounted cash flow model driven by growth and marginal return
assumptions.
. A detailed analysis of normalized earnings power.
. Assessment of financial strength and capital adequacy.
. Analysis of historical dividends and share repurchases in the context of
a company's ability to grow capital returned to shareholders in the future.
. Relative valuation analysis versus history and peers.
. Traditional competitive analysis of the company and its industry.
. Intangible considerations such as management execution.
================================================================================
PORTFOLIO COMPOSITION
By industry
1. Diversified Banks 16.2%
2. Thrifts & Mortgage Finance 12.2
3. Other Diversified Financial Services 11.5
4. Investment Banking & Brokerage 9.3
5. Asset Management & Custody Banks 8.9
6. Multi-Line Insurance 8.7
7. Property & Casualty Insurance 8.1
8. Consumer Finance 6.7
9. Insurance Brokers 4.6
10. Regional Banks 4.2
2 Other industries, each less than 3% of total net assets 4.5
Money Market Funds Plus Other Assets Less Liabilities 5.1
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Fannie Mae 6.7%
2. JP Morgan Chase & Co. 5.9
3. Citigroup Inc. 5.6
4. Bank of America Corp. 5.2
5. Wachovia Corp. 4.8
6. Merrill Lynch & Co., Inc. 4.6
7. Hartford Financial Services Group, Inc. (The) 3.9
8. Freddie Mac 3.6
9. Bank of New York Co., Inc. (The) 3.5
10. American Express Co. 3.5
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding money market fund holdings.
================================================================================
2
AIM V.I. FINANCIAL SERVICES FUND
Portfolio construction is largely a bottom-up process, driven by the two
investment opportunities described above, with careful attention to risk
management. The result is normally a 35- to 50-stock portfolio with investments
that are attractive from both a valuation and capital discipline perspective
representing top holdings. In constructing the portfolio, we focus on maximizing
the return potential of the valuation and return-of-capital opportunities while
striving to mitigate absolute investment risk by limiting commonality among
investments in the portfolio. We do not mimic a static benchmark in an attempt
to neutralize short-term relative performance variation but focus risk
management on the more complex nature of absolute investment risk, an especially
important consideration given the inherent risk concentration of a single-sector
portfolio.
MARKET CONDITIONS AND YOUR FUND
The domestic economy continued to recover throughout the year, with broader
markets responding favorably. Higher commodity prices, a more restrictive
monetary policy, and concerns about the sustainability of economic growth were
key issues during the period. The in-line performance of the financial sector
was driven by steady earnings growth and strong returns on equity at many
financial companies, and stable credit trends offset by mounting concerns over
rising interest rates.
Fund holdings in stocks of investment banking companies were the most
significant contributors to performance during the year as fixed income markets
remained robust and market activity continued to recover from depressed bear
market levels. Capital One Financial added to performance as consumer finance
stocks exhibited strength amidst the return of employment growth. National
banking companies Bank of America and Wachovia also contributed to performance.
The largest negative impact on performance relative to the benchmark and
peers was the portfolio's underweight position in regional banks, which
performed well, benefiting from a steep yield curve and increased merger
activity. Detractors from performance included insurance brokers Marsh &
McLennan and Aon because of concerns over accusations of anti-competitive
behavior by the New York Attorney General and Ameritrade Holdings (not a fund
holding at the close of the fiscal year) amidst heightened price competition in
on-line stock brokerage.
We significantly restructured the portfolio after assuming management of
the fund on October 1, 2004. Portfolio changes implemented over the course of
the fourth quarter were intended to both increase the portfolio's upside to
intrinsic value and increase the representation of companies returning capital
to shareholders. Examples of portfolio actions include adding to Fannie Mae,
which we believe provides among the best upside to intrinsic value in the
financial sector and purchasing Federated Investors Inc., an asset manager that
diligently returns its cash flows to shareholders. The portfolio modestly lagged
the financial sector in relative terms during the quarter despite strong
absolute returns. We believe that quarter-to-quarter performance is often driven
by normal market volatility from short-term investor psychology. Our investment
discipline is focused on creating wealth for shareholders over the long term.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in a single-sector or single-region mutual fund involves greater risk
and potential reward than investing in a more diversified fund.
International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
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 holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies. The fund may invest
up to 25% of its assets in the securities of non-U.S. issuers. Securities of
Canadian issuers and American Depository Receipts are not subject to this 25%
limitation.
Investing in small and mid-size companies involves risks not associated
with investing in more established companies, including business risk,
significant stock price fluctuations and illiquidity.
IN CLOSING
Thank you for your investment in the fund. We look forward to working on your
behalf to build a diversified portfolio of what we believe to be undervalued and
capital disciplined financial companies that profitably grow cash flows over
time. We believe seeking such a portfolio provides the best opportunity to
achieve attractive long-term returns when investing in the financial sector.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
[SIMON PHOTO]
MICHAEL J. SIMON,
Chartered Financial Analyst, senior portfolio manager, is the lead portfolio
manager of AIM V.I. Financial Services Fund. He started his investment career in
1989 and joined AIM in 2001. Mr. Simon received his B.B.A in finance from Texas
Christian University and his M.B.A. from the University of Chicago. He has
served as Occasional Faculty in the Finance and Decision Sciences Department of
Texas Christian University's M.J. Neeley School of Business.
[WALSH PHOTO]
MEGGAN M. WALSH,
Chartered Financial Analyst, senior portfolio manager, is a manager of AIM V.I.
Financial Services Fund. She has worked in the investment industry since 1987.
She joined AIM in 1991 as a trader of short-term taxable fixed-income
securities. In 1998, Ms. Walsh assumed portfolio management duties in AIM's
equities department. Ms. Walsh received her bachelor's degree in finance from
the University of Maryland and her M.B.A. from Loyola College.
Assisted by the Basic Value Team and the Diversified Dividend Team
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
3
AIM V.I. FINANCIAL SERVICES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs including management fees,
distribution and/or service fees (12b-1) and other fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the fund and to compare these costs with ongoing costs of investing in other
mutual funds. The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period, July 1, 2004 - December
31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (07/01/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1,070.20 $5.88 $1,019.46 $5.74
Series II 1,000.00 1,068.70 7.18 1,018.20 7.00
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual expenses
and will differ from the hypothetical ending account value which is based on the
fund's expense ratio and a hypothetical annual return of 5% before expenses. The
actual cumulative return at net asset value for the period July 1, 2004, to
December 31, 2004, was 7.02% and 6.87% for Series I and II shares, respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (1.13% and 1.38%
for Series I and II shares, respectively) multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year
period).
================================================================================
4
AIM V.I. FINANCIAL SERVICES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the early years before reinvested distributions
and compounding create the potential for the original investment to grow to very
large numbers. Had the chart used a linear scale along its vertical axis, you
would not be able to see as clearly the movements in the value of the fund and
the indexes during the fund's early years. We use a logarithmic scale in
financial reports of funds that have more than five years of performance
history.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
Inception (9/20/99) 7.93%
5 Years 6.15
1 Year 8.68
Series II Shares
Inception 7.67
5 Years 5.89
1 Year 8.44
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the blended returns of the historical performance of the funds
Series II shares since their inception and the restated historical performance
of the fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the higher Rule 12b-l fees applicable to the Series
II shares. The inception date of the funds Series I shares is 9/20/99. The
inception date of the funds Series II shares is 4/30/04. The Series I and Series
II shares invest in the same portfolio of securities and will have substantially
similar performance, except to the extent that expenses borne by each class
differ.
================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
9/20/99- 12/31/04 Index data as of 9/30/99
AIM V.I. Financial Lipper Financial S&P 500
Services Fund- Services Fund Financials S&P 500
Date Series I Index Index Index
- --------- ------------------ ---------------- ---------- -------
9/20/1999 $10000
9/99 9950 $10000 $10000 $10000
12/99 11100 10478 10877 11487
3/00 10990 10498 11135 11750
6/00 11081 10317 10810 11438
9/00 13532 12526 13383 11327
12/00 13855 13279 13672 10441
3/01 12414 12104 12355 9204
6/01 13275 12985 13327 9742
9/01 11603 11571 11585 8313
12/01 12487 12378 12449 9201
3/02 12950 12959 12879 9227
6/02 12015 12268 11920 7991
9/02 10145 10431 9890 6611
12/02 10628 10892 10626 7168
3/03 10122 10350 10083 6943
6/03 11812 12163 11946 8011
9/03 12318 12788 12451 8223
12/03 13766 14376 13923 9223
3/04 14437 15084 14602 9380
6/04 13981 14669 14255 9541
9/04 13929 14872 14309 9362
12/04 $14960 $16383 $15440 $10226
Source: Lipper, Inc.
================================================================================
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or financial advisor for the most recent
month-end variable product performance. Performance figures reflect fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
AIM V.I. Financial Services Fund, a series portfolio of AIM Variable
Insurance Funds, is currently offered through insurance companies issuing
variable products. You cannot purchase shares of the fund directly. Performance
figures given represent the fund and are not intended to reflect actual variable
product values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return. *
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Lipper Financial Services Fund Index represents an average of the
10 largest financial-services funds tracked by Lipper, Inc., an independent
mutual fund performance monitor.
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --registered trademark--Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
The S&P 500 Financials Index is a market capitalization weighted index of
companies involved in activities such as banking, consumer finance, investment
banking and brokerage, asset management, insurance and investment, and real
estate, including real estate investment trusts.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
-------------------------------------------------------------
COMMON STOCKS-94.90%
ASSET MANAGEMENT & CUSTODY
BANKS-8.91%
Bank of New York Co., Inc. (The) 215,475 $ 7,201,174
-------------------------------------------------------------
Federated Investors, Inc.-Class B 89,500 2,720,800
-------------------------------------------------------------
Franklin Resources, Inc. 59,900 4,172,035
-------------------------------------------------------------
Legg Mason, Inc. 40,650 2,978,019
-------------------------------------------------------------
Northern Trust Corp. 22,700 1,102,766
-------------------------------------------------------------
18,174,794
-------------------------------------------------------------
CONSUMER FINANCE-6.65%
American Express Co. 127,600 7,192,812
-------------------------------------------------------------
Capital One Financial Corp. 75,600 6,366,276
-------------------------------------------------------------
13,559,088
-------------------------------------------------------------
DIVERSIFIED BANKS-16.22%
Anglo Irish Bank Corp. PLC (Ireland)/(a)/ 88,300 2,141,350
-------------------------------------------------------------
Bank of America Corp. 227,624 10,696,052
-------------------------------------------------------------
U.S. Bancorp 116,400 3,645,648
-------------------------------------------------------------
Wachovia Corp. 184,600 9,709,960
-------------------------------------------------------------
Wells Fargo & Co. 110,650 6,876,898
-------------------------------------------------------------
33,069,908
-------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS-1.83%
UBS A.G. (Switzerland) 44,600 3,739,264
-------------------------------------------------------------
INSURANCE BROKERS-4.64%
Aon Corp. 194,000 4,628,840
-------------------------------------------------------------
Marsh & McLennan Cos., Inc. 147,000 4,836,300
-------------------------------------------------------------
9,465,140
-------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-9.30%
Goldman Sachs Group, Inc. (The) 50,900 5,295,636
-------------------------------------------------------------
Lehman Brothers Holdings Inc. 27,700 2,423,196
-------------------------------------------------------------
Merrill Lynch & Co., Inc. 158,100 9,449,637
-------------------------------------------------------------
Morgan Stanley 32,100 1,782,192
-------------------------------------------------------------
18,950,661
-------------------------------------------------------------
LIFE & HEALTH INSURANCE-2.70%
Prudential Financial, Inc. 100,300 5,512,488
-------------------------------------------------------------
MARKET
SHARES VALUE
---------------------------------------------------------------------
MULTI-LINE INSURANCE-8.65%
American International Group, Inc. 108,850 $ 7,148,180
---------------------------------------------------------------------
Genworth Financial Inc.-Class A 93,500 2,524,500
---------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 114,800 7,956,788
---------------------------------------------------------------------
17,629,468
---------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-11.47%
Citigroup Inc. 235,940 11,367,589
---------------------------------------------------------------------
JPMorgan Chase & Co. 307,920 12,011,959
---------------------------------------------------------------------
23,379,548
---------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-8.11%
ACE Ltd. (Cayman Islands) 136,500 5,835,375
---------------------------------------------------------------------
Chubb Corp. (The) 16,100 1,238,090
---------------------------------------------------------------------
MBIA Inc. 50,300 3,182,984
---------------------------------------------------------------------
SAFECO Corp. 70,300 3,672,472
---------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 70,406 2,609,950
---------------------------------------------------------------------
16,538,871
---------------------------------------------------------------------
REGIONAL BANKS-4.21%
Cullen/Frost Bankers, Inc. 29,500 1,433,700
---------------------------------------------------------------------
Fifth Third Bancorp 61,125 2,889,990
---------------------------------------------------------------------
North Fork Bancorp., Inc. 96,250 2,776,813
---------------------------------------------------------------------
Zions Bancorp. 21,800 1,483,054
---------------------------------------------------------------------
8,583,557
---------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-12.21%
Fannie Mae 190,600 13,572,626
---------------------------------------------------------------------
Freddie Mac 100,450 7,403,165
---------------------------------------------------------------------
PMI Group, Inc. (The) 94,100 3,928,675
---------------------------------------------------------------------
24,904,466
---------------------------------------------------------------------
Total Common Stocks
(Cost $162,702,688) 193,507,253
---------------------------------------------------------------------
MONEY MARKET FUNDS-5.08%
Premier Portfolio (Cost $10,351,853)/(b)(c)/ 10,351,853 10,351,853
---------------------------------------------------------------------
TOTAL INVESTMENTS-99.98% (Cost $173,054,541) 203,859,106
---------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.02% 30,975
---------------------------------------------------------------------
NET ASSETS-100.00% $203,890,081
---------------------------------------------------------------------
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004, represented 1.05% of
the Fund's Total Investments. See Note 1A.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(c) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. FINANCIAL SERVICES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $162,702,688) $193,507,253
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $10,351,853) 10,351,853
- -----------------------------------------------------------------------------------
Total investments (cost $173,054,541) 203,859,106
- -----------------------------------------------------------------------------------
Receivables for:
Fund shares sold 255,145
- -----------------------------------------------------------------------------------
Dividends 195,107
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 8,733
- -----------------------------------------------------------------------------------
Total assets 204,318,091
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 33,584
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 13,403
- -----------------------------------------------------------------------------------
Accrued administrative services fees 339,764
- -----------------------------------------------------------------------------------
Accrued distribution fees-Series II 7
- -----------------------------------------------------------------------------------
Accrued trustees' fees 181
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 2,732
- -----------------------------------------------------------------------------------
Accrued operating expenses 38,339
- -----------------------------------------------------------------------------------
Total liabilities 428,010
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $203,890,081
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $181,595,870
- -----------------------------------------------------------------------------------
Undistributed net investment income 1,881,398
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (10,392,115)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 30,804,928
- -----------------------------------------------------------------------------------
$203,890,081
- -----------------------------------------------------------------------------------
NET ASSETS:
Series I $203,879,199
- -----------------------------------------------------------------------------------
Series II $ 10,882
- -----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 13,956,667
- -----------------------------------------------------------------------------------
Series II 746
- -----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 14.61
- -----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 14.59
- -----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $63,126) $ 4,159,454
-----------------------------------------------------------------------
Dividends from affiliated money market funds 98,266
-----------------------------------------------------------------------
Total investment income 4,257,720
-----------------------------------------------------------------------
EXPENSES:
Advisory fees 1,589,014
-----------------------------------------------------------------------
Administrative services fees 577,778
-----------------------------------------------------------------------
Custodian fees 50,286
-----------------------------------------------------------------------
Distribution fees-Series II 17
-----------------------------------------------------------------------
Transfer agent fees 12,636
-----------------------------------------------------------------------
Trustees' fees and retirement benefits 15,442
-----------------------------------------------------------------------
Other 126,597
-----------------------------------------------------------------------
Total expenses 2,371,770
-----------------------------------------------------------------------
Less:Fees waived and expenses reimbursed (3,586)
-----------------------------------------------------------------------
Net expenses 2,368,184
-----------------------------------------------------------------------
Net investment income 1,889,536
-----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 15,031,860
-----------------------------------------------------------------------
Foreign currencies 24,012
-----------------------------------------------------------------------
15,055,872
-----------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (1,289,792)
-----------------------------------------------------------------------
Foreign currencies (29)
-----------------------------------------------------------------------
(1,289,821)
-----------------------------------------------------------------------
Net gain from investment securities and foreign currencies 13,766,051
-----------------------------------------------------------------------
Net increase in net assets resulting from operations $15,655,587
-----------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. FINANCIAL SERVICES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,889,536
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 15,055,872
- ------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (1,289,821)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,655,587
- ------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (1,438,311)
- ------------------------------------------------------------------------------------------------------------------------
Series II (76)
- ------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (1,438,387)
- ------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (20,689,232)
- ------------------------------------------------------------------------------------------------------------------------
Series II 10,076
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (20,679,156)
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (6,461,956)
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 210,352,037
- ------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $1,881,398 and $1,395,549, respectively) $203,890,081
- ------------------------------------------------------------------------------------------------------------------------
2003
- -----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,441,609
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 9,532,585
- -----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 32,955,670
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 43,929,864
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (968,154)
- -----------------------------------------------------------------------------------------------------------------------
Series II --
- -----------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (968,154)
- -----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I 24,987,582
- -----------------------------------------------------------------------------------------------------------------------
Series II --
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 24,987,582
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 67,949,292
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 142,402,745
- -----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $1,881,398 and $1,395,549, respectively) $210,352,037
- -----------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. FINANCIAL SERVICES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Financial Services Fund, formerly INVESCO VIF-Financial Services Fund,
(the "Fund") is a series portfolio of AIM Variable Insurance Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twenty-eight separate
portfolios. The Fund currently offers two classes of shares, Series I and
Series II, both of which are offered to insurance company separate accounts
funding variable annuity contracts and variable life insurance policies
("variable products"). Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
On April 30, 2004, the Fund was restructured from a separate series of INVESCO
Variable Investment Funds, Inc. to a new series portfolio of the Trust.
The Fund's investment objective is to seek capital growth. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
AIM V.I. FINANCIAL SERVICES FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from, (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.75% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $1,021,870. Prior to May 1,
2004, the Trust had an investment advisory agreement with INVESCO Funds Group,
Inc. ("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund
paid advisory fees under similar terms to IFG of $567,144.
AIM V.I. FINANCIAL SERVICES FUND
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of each Series to 1.30% of average daily net
assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit total
annual operating expenses (excluding certain items discussed below) of each
Series to 1.25% of average daily net assets. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits
are in the form of credits that the Fund receives from banks where the Fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the Fund. AIM did
not waive fees and/or reimburse expenses during the period under this expense
limitation. Further, AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from the affiliated
money market funds on investments by the Fund in such affiliated money market
funds. Voluntary fee waivers or reimbursements may be modified or discontinued
at any time upon consultation with the Board of Trustees without further notice
to investors. For the year ended December 31, 2004, AIM waived fees of $3,538.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $48 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $374,081, of which AIM retained $39,786 for services
provided by AIM. Prior to May 1, 2004, the Fund had an administrative services
agreement with IFG. Pursuant to such agreement for the period January 1, 2004
through April 30, 2004, under similar terms, IFG was paid $203,697, of which
IFG retained $8,333 for services provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $12,636.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays A I M Distributors compensation at the annual rate of 0.25% of
the Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit Total Annual Fund Operating Expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets, through April 30, 2006. AIM Distributors did
not reimburse fees during the period under this expense limitation. Pursuant to
the Plan, for the period April 30, 2004 (date sales commenced) through December
31, 2004, the Series II shares paid $17.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI, and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
Investments of Daily Available Cash Balances:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
Premier Portfolio $7,917,749 $80,057,637 $(77,623,533) $ -- $10,351,853 $98,266 $ --
- ---------------------------------------------------------------------------------------------------------
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
AIM V.I. FINANCIAL SERVICES FUND
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,178
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31,
2004 and 2003 was as follows:
2004 2003
-----------------------------------------------------------
Distributions paid from ordinary income $1,438,387 $968,154
-----------------------------------------------------------
Tax Components of Net Assets:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
-------------------------------------------------
Undistributed ordinary income $ 1,892,330
-------------------------------------------------
Unrealized appreciation-investments 28,617,503
-------------------------------------------------
Temporary book/tax differences (10,932)
-------------------------------------------------
Capital loss carryforward (8,204,690)
-------------------------------------------------
Shares of beneficial interest 181,595,870
-------------------------------------------------
Total net assets $203,890,081
-------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales. The
tax-basis unrealized appreciation on investments amount includes appreciation
on foreign currencies of $364.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $14,174,444 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
-------------------------------
December 31, 2010 $8,204,690
-------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $137,705,060 and $160,244,698, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $32,211,511
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,594,372)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $28,617,139
-------------------------------------------------------------------------
Cost of investments for tax purposes is $175,241,967.
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and redomestication expenses, on December 31, 2004, undistributed
net investment income (loss) was increased by $34,700, undistributed net
realized gain (loss) was decreased by $24,015 and shares of beneficial interest
decreased by $10,685. This reclassification had no effect on the net assets of
the Fund.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
- ----------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2004 2003
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------
Sold:
Series I 3,650,703 $ 51,539,943 10,022,622 $115,989,532
- ----------------------------------------------------------------------------------------
Series II/(b)/ 741 10,000 -- --
- ----------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I 99,883 1,438,311 74,588 968,154
- ----------------------------------------------------------------------------------------
Series II/(b)/ 5 76 -- --
- ----------------------------------------------------------------------------------------
Reacquired:
Series I (5,326,890) (73,667,486) (8,121,088) (91,970,104)
- ----------------------------------------------------------------------------------------
(1,575,558) $(20,679,156) 1,976,122 $ 24,987,582
- ----------------------------------------------------------------------------------------
/(a)/There are four shareholders that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 87% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related, for providing services to the Fund, AIM and or
AIM affiliates including but not limited to services such as, securities,
brokerage, third party recordkeeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record are also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.54 $ 10.50 $ 12.42 $ 13.84 $ 11.10
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.08 0.08 0.06 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.02 3.02 (1.93) (1.43) 2.72
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.17 3.10 (1.85) (1.37) 2.75
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.10) (0.06) (0.07) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.01) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.10) (0.06) (0.07) (0.05) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.61 $ 13.54 $ 10.50 $ 12.42 $ 13.84
- ---------------------------------------------------------------------------------------------------------------------------
Total return/(a)/ 8.68% 29.58% (14.90)% (9.88)% 24.80%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $203,879 $210,352 $142,403 $183,084 $220,316
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.12%/(b)/ 1.09% 1.09% 1.07% 1.09%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.89%/(b)/ 0.87% 0.57% 0.46% 0.66%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 67% 65% 72% 132% 114%
- ---------------------------------------------------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholders
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(b)/Ratios are based on average daily net assets of $211,861,725.
SERIES II
----------------------
APRIL 30, 2004
(DATE SALES COMMENCED)
TO DECEMBER 31, 2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $13.50
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.07
- --------------------------------------------------------------------------------
Total from investment operations 1.19
- --------------------------------------------------------------------------------
Less distributions from net investment income (0.10)
- --------------------------------------------------------------------------------
Net asset value, end of period $14.59
- --------------------------------------------------------------------------------
Total return/(a)/ 8.85%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets: 1.38%/(b)/
- --------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.63%/(b)/
- --------------------------------------------------------------------------------
Portfolio turnover rate/(c)/ 67%
- --------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholders
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
/(b)/Ratios are annualized and based on average daily net assets of $10,156.
/(c)/Not annualized for periods less than one year.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 11--LEGAL PROCEEDINGS (continued)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the Federal and state securities laws; (ii) violation
of various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv)
breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; injunctive
relief; disgorgement of management fees; imposition of a constructive trust;
removal of certain directors and/or employees; various corrective measures
under ERISA; rescission of certain Funds' advisory agreements; interest; and
attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
AIM V.I. FINANCIAL SERVICES FUND
NOTE 11--LEGAL PROCEEDINGS (continued)
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. FINANCIAL SERVICES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM V.I. Financial Services Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Financial Services Fund,
formerly known as INVESCO VIF-Financial Services Fund, (one of the funds
constituting AIM Variable Insurance Funds, formerly known as INVESCO Variable
Investment Funds, Inc., hereafter referred to as the "Fund") at December 31,
2004, 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 periods indicated, in conformity with accounting
principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. FINANCIAL SERVICES FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Financial Services Fund (now
known as AIM V.I. Financial Services Fund), ("Fund"), an investment portfolio
of INVESCO Variable Investment Funds, Inc. ("Company"), (now known as AIM
Variable Insurance Funds), a Delaware statutory trust, was held April 2, 2004.
The meeting was held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
MATTER VOTES FOR
- -------------------------------------------------------------------------------------------------------------------------------
(2) Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 14,085,447
(3) Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 14,033,043
(4)* Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 88,123,016
VOTES
MATTER AGAINST
- -------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 489,846
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 515,646
Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 3,299,467
WITHHELD/
MATTER ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 1,002,104
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 1,028,708
Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V.I. FINANCIAL SERVICES FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ---------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 Trustee 2003 Director, President and Chief Executive None
and Executive Vice President Officer, A I M Management Group Inc.
(financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris,
company) Inc. (unified messaging
provider)
- ---------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & company)
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, (Chairman) (registered
including the Boss Group Ltd. (private investment company);
investment and management) and Magellan Annuity and Life Re
Insurance Company (Holdings), Ltd.
(insurance company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and
Trustee Century Group, Inc. (government affairs Discovery Global
company) and Texana Timber LP Education Fund (non-
(sustainable forestry company) profit)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. FINANCIAL SERVICES FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group,
Trustee (California) Inc.
Formerly: Associate Justice of the
California Court of Appeals
- ------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- ------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Other Officers
- ------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio
Manager, INVESCO Institutional (N.A.),
Inc.
- ------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. FINANCIAL SERVICES FUND
AIM V.I. HEALTH SCIENCES FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-HEALTH SCIENCES FUND
WAS RENAMED AIM V.I. HEALTH SCIENCES FUND.
AIM V.I. HEALTH SCIENCES FUND seeks to provide capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. HEALTH SCIENCES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the fiscal year ended December 31, 2004, AIM V.I. Health Sciences Fund
delivered positive returns to shareholders. Also, the fund and the S&P 500
Index, which represents the performance of the U.S. stock market, delivered
positive back-to-back annual returns for the first time since 1999. While past
performance cannot guarantee comparable future results, we were pleased to
deliver positive returns to our shareholders.
================================================================================
FUND VS. INDEXES
TOTAL RETURNS, 12/31/03-12/31/04, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF
VARIABLE PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Series I Shares 7.57%
Series II Shares 7.25
S&P 500 Index (Broad Market Index) 10.87
Goldman Sachs Health Care Index (Style-specific Index) 6.27
Lipper Health/Biotech Fund Index (Peer Group Index) 11.74
Source: Lipper, Inc.
================================================================================
While delivering positive returns for the year, health care was one of the
weaker-performing sectors of the broad stock market--explaining why the fund
lagged the S&P 500 Index. The fund performed in line with the Goldman Sachs
Health Care Index but underperformed the Lipper Health/Biotech Fund Index, the
fund's peer group index. The Lipper index includes a number of funds that invest
almost exclusively in biotechnology stocks, which, collectively, performed
strongly in 2004.
HOW WE INVEST
Because we assumed management of the fund on October 1, 2004, we wanted to share
with you our investment process and philosophy. We believe the health care
sector is largely resistant to macroeconomic changes, making it a classic growth
sector. Companies within the health care sector may benefit from a number of
factors, including:
. Favorable demographic trends. As members of the baby boom generation age,
they demand treatments to extend and improve their lives.
. Groundbreaking discoveries. We attempt to identify companies with market
dominance in fast-growing markets, as well as companies on the verge of medical
breakthroughs.
. Barriers to entry. Many health care companies benefit from patents, which
serve as natural barriers to entry.
. Defensive positioning. Regardless of economic conditions, people spend
money on health care.
We invest primarily in health care companies in four broad industries:
pharmaceuticals, biotechnology, medical technology and health services. To
manage risk, we typically limit investments in a single stock to less than five
percent of fund assets; we strive to diversify across subsectors to help reduce
volatility; and we closely monitor political trends that could negatively affect
a specific industry.
Before buying a stock for the portfolio, we subject it to in-depth
fundamental research, determining whether we consider it attractively valued,
assessing the long-term commercial potential of a company's current and
prospective products, and evaluating management.
We sell a holding if we identify a more attractive investment opportunity,
if we see a deterioration of a company's fundamentals, if a company demonstrates
its inability to capitalize on a market opportunity, or if there is a negative
change in management.
MARKET CONDITIONS AND YOUR FUND
As a group, pharmaceutical companies--which account for a large portion of the
fund's investments--faced a difficult year in 2004. Investors worried about
proposed legislation to allow the reimportation of drugs from Canada (and other
nations) into the United States, patent expirations that could reduce
pharmaceutical companies' profits and the lack of new products in those
companies' pipelines.
On September 30,2004, Merck announced the voluntary worldwide withdrawal of
its profitable Vioxx--registered trademark--arthritis painkiller after studies
suggested long-term use of the drug might increase the risk of heart attacks and
strokes. Vioxx was one of Merck's most profitable prescription drugs, and its
================================================================================
PORTFOLIO COMPOSITION
By industry
1. Pharmaceuticals 44.6%
2. Biotechnology 21.2
3. Health Care Equipment 19.0
4. Managed Health Care 3.9
5. Health Care Facilities 2.1
6. Health Care Services 2.0
7. Health Care Supplies 1.1
8. Diversified Chemicals 0.2
Money Market Funds Plus Other Assets Less Liabilities 5.9
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Amgen Inc. 5.7%
2. Wyeth 5.7
3. Sanofi-Aventis (France) 5.7
4. Eisai Co., Ltd. (Japan) 5.3
5. Forest Laboratories, Inc. 5.2
6. Pfizer Inc. 5.1
7. Guidant Corp. 4.4
8. Gilead Sciences, Inc. 4.2
9. Fujisawa Pharmaceutical Co. Ltd. (Japan) 3.9
10. PacifiCare Health Systems, Inc. 3.5
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
================================================================================
2
AIM V.I. HEALTH SCIENCES FUND
withdrawal surprised everyone--including us. Initially, Pfizer was thought
likely to benefit from Merck's problems. But within several weeks, questions
arose about Pfizer's Celebrex, a drug chemically similar to Vioxx. While Pfizer
continued to market Celebrex through the end of the fiscal year, there were
signs that prescriptions written for Celebrex declined substantially late in the
year.
While the year was difficult for Merck and Pfizer, both companies met the
investment criteria we outlined above when we purchased them. Before the end of
the year, we sold our stock in Merck because we believed the Vioxx matter was
likely to result in a deterioration of the company's revenue and earnings. We
continued to hold Pfizer because we considered it attractively valued and
continued to believe in the long-term commercial potential of the company's
current and prospective products.
When the new management team assumed responsibility for the fund on October
1, we made a number of changes to the fund. We reduced the percentage of assets
invested in the pharmaceutical industry. Specifically, we sold our holdings in
Merck and GlaxoSmithKline and we added some Japanese and European pharmaceutical
holdings. Additionally, we shifted some weighting from large- to mid- and
small-cap stocks. We believed this provided the fund with greater
diversification and added stocks with the potential for faster growth. We
boosted the percentage of fund assets invested in biotechnology stocks from
approximately 9% to approximately 21% at the close of the fiscal year. While
pharmaceutical stocks, as a group, hindered fund performance, biotechnology and
health care equipment stocks, collectively, helped fund performance.
UnitedHealth Group and Guidant were two stocks that performed well for the
fund. UnitedHealth Group was the fund's top performer for the year. The company
provides an array of health care-related services to individuals, physicians and
others. We have long been impressed with UnitedHealth Group's management,
particularly its ability to contain costs and expand by acquisition, including
its 2004 acquisition of Oxford Health. The company reported record 2004 earnings
and has demonstrated strong earnings growth over the years. Prior to the close
of the fiscal year, however, the stock's valuation reached a level we considered
to be high, so we sold our position in the stock and took our profits.
Guidant is a leading manufacturer and supplier of cardiovascular medical
products, including stents and pacemakers. Cardiovascular care continues to be
one of the fastest growing areas of health care as populations in the United
States and elsewhere age. We were impressed with the company's management and
its leading-edge technologies. Near year-end, Guidant agreed to be acquired, at
a premium, by Johnson & Johnson, also a fund holding and another firm that met
all of our investment criteria.
IN CLOSING
At the close of the fiscal year, the fund held 65 stocks and its net assets
totaled $354.9 million. As always, we thank you for your continuing investment
in AIM V.I. Health Sciences Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
[YELLEN PHOTO]
MICHAEL YELLEN, senior portfolio manager, is the lead portfolio manager of AIM
V.I. Health Sciences Fund. He began his investment industry career in 1991 and
joined AIM in 1998. Mr. Yellen received his B.A. from Stanford University.
[ANDERSON PHOTO]
KIRK L. ANDERSON, portfolio manager, is a manager of AIM V.I. Health Sciences
Fund. Mr. Anderson joined AIM in 1994 in the fund services area. He moved to
portfolio administration in 1995, became an analyst in 1997, and was named a
portfolio manager in 2003. Mr. Anderson earned a B.A. from Texas A&M University
and an M.S. in finance from the University of Houston.
[UNTERHALTER PHOTO]
BRYAN A. UNTERHALTER, portfolio manager, is a manager of AIM V.I. Health
Sciences Fund. He began his investment career in 1995 as an equity trader. He
joined AIM in 1997 and a year later became an analyst on AIM'S International
(Europe/Canada) investment management team. He was promoted to his current
position in 2003. A native of Johannesburg, South Africa, Mr. Unterhalter
received a B.A. from The University of Texas at Austin and an M.B.A. from the
University of St. Thomas.
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in a single-sector or single-region mutual fund involves greater risk
and potential reward than investing in a more diversified fund.
Investing in small and mid-size companies involves risks not associated
with investing in more established companies, including business risk,
significant stock price fluctuations and illiquidity.
The fund may invest up to 25% of its assets in the securities of non-U.S.
issuers. International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
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 holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies.
Portfolio turnover is greater than that of most funds, which may affect
performance.
3
AIM V.I. HEALTH SCIENCES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-l); and other fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period, July 1, 2004
- - December 31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
your actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs. Therefore, the hypothetical information is useful in
comparing ongoing costs, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (07/01/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1,033.90 $5.62 $1,019.61 $5.58
Series II 1,000.00 1,032.30 6.90 1,018.35 6.85
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual
expenses and will differ from the hypothetical ending account value which
is based on the fund's expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004, to December 31, 2004, was 3.39% and 3.23% for Series I
and Series II shares, respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (1.10% and 1.35%
for Series I and Series II shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
================================================================================
4
AIM V.I. HEALTH SCIENCES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the early years before reinvested distributions
and compounding create the potential for the original investment to grow to very
large numbers. Had the chart used a linear scale along its vertical axis, you
would not be able to see as clearly the movements in the value of the fund and
the indexes during the fund's early years. We use a logarithmic scale in
financial reports of funds that have more than five years of performance
history.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
Inception (5/21/1997) 9.24%
5 Years 3.45
1 Year 7.57
Series II Shares
Inception 8.96
5 Years 3.19
1 Year 7.25
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the blended returns of the historical performance of the fund's
Series II shares since their inception and the restated historical performance
of the fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the higher Rule 12b-1 fees applicable to the Series
II shares. The inception date of the fund's Series I shares is 5/21/97. The
inception date of the fund's Series II shares is 4/30/04. The Series I and
Series II shares invest in the same portfolio of securities and will have
substantially similar performance, except to the extent that expenses borne by
each class differ.
================================================================================
RESULTS OF A $10,000 INVESTMENT
5/21/97-12/31/04 Index data from 5/31/97
[MOUNTAIN CHART]
AIM V.I. Health Sciences S&P 500 Lipper Health/ Goldman Sachs
Date Fund-Series I Index Biotech Fund Index Health Care Index
- ------- ------------------------ ------- ------------------ -----------------
5/21/97 $10000 $10000 $10000 $10000
6/97 10000 10445 10505 10781
9/97 10610 11227 11402 11066
12/97 11040 11549 11252 11676
3/98 12699 13159 12586 13598
6/98 13629 13596 12666 14519
9/98 13618 12247 12007 14036
12/98 15768 14852 14177 16376
3/99 15984 15592 14396 16606
6/99 15108 16689 14286 16225
9/99 14428 15649 13634 14595
12/99 16536 17976 15644 15713
3/00 17187 18388 17120 16567
6/00 19664 17899 20199 19941
9/00 22180 17726 22265 20844
12/00 21587 16340 22477 22431
3/01 16956 14404 18090 18457
6/01 18961 15246 20485 19188
9/01 17803 13009 18528 19063
12/01 18868 14399 20125 19731
3/02 17821 14439 18824 19344
6/02 16059 12506 15944 16089
9/02 15031 10346 14654 15003
12/02 14252 11218 14851 15579
3/03 14553 10865 14985 15786
6/03 16532 12536 17474 18024
9/03 16346 12868 17911 17725
12/03 18218 14434 19385 19196
3/04 18944 14678 20396 19453
6/04 18955 14931 20702 20116
9/04 18084 14652 19886 19037
12/04 $19597 $16003 $21660 $20399
Source: Lipper, Inc./Factset
================================================================================
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or financial advisor for the most recent
month-end variable product performance. Performance figures reflect fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
AIM V.I. Health Sciences Fund, a series portfolio of AIM Variable
Insurance Funds, is currently offered through insurance companies issuing
variable products. You cannot purchase shares of the fund directly. Performance
figures given represent the fund and are not intended to reflect actual variable
product values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return.*
ABOUT INDEXES USED IN THIS REPORT
The Goldman Sachs Health Care Index is a modified capitalization-weighted index
designed as a benchmark for U.S. traded securities in the health care sector.
The index includes companies in the following categories: providers of
healthcare related services, researchers, manufacturers, and distributors of
pharmaceuticals, drugs and related sciences, and medical supplies, instruments
and products.
The unmanaged Lipper Health/Biotech Fund Index represents an average of the
30 largest health and biotechnology funds tracked by Lipper, Inc., an
independent mutual fund performance monitor.
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- - registered trademark - Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
--------------------------------------------------------------
DOMESTIC COMMON STOCKS-68.18%
BIOTECHNOLOGY-18.82%
Amgen Inc./(a)/ 318,100 $ 20,406,115
--------------------------------------------------------------
Biogen Idec Inc./(a)/ 6,000 399,660
--------------------------------------------------------------
Corgentech Inc./(a)(b)/ 220,000 1,821,600
--------------------------------------------------------------
Cubist Pharmaceuticals, Inc./(a)/ 432,300 5,114,109
--------------------------------------------------------------
Gen-Probe Inc./(a)/ 1,100 49,731
--------------------------------------------------------------
Genzyme Corp./(a)/ 68,400 3,971,988
--------------------------------------------------------------
Gilead Sciences, Inc./(a)/ 425,000 14,870,750
--------------------------------------------------------------
Indevus Pharmaceuticals, Inc./(a)(b)/ 274,000 1,633,040
--------------------------------------------------------------
Isis Pharmaceuticals, Inc./(a)(b)/ 410,000 2,419,000
--------------------------------------------------------------
Martek Biosciences Corp./(a)/ 5,500 281,600
--------------------------------------------------------------
OSI Pharmaceuticals, Inc./(a)/ 164,000 12,275,400
--------------------------------------------------------------
Protein Design Labs, Inc./(a)/ 171,600 3,545,256
--------------------------------------------------------------
66,788,249
--------------------------------------------------------------
HEALTH CARE EQUIPMENT-18.99%
Bard (C.R.), Inc. 66,000 4,222,680
--------------------------------------------------------------
Baxter International Inc. 155,000 5,353,700
--------------------------------------------------------------
Becton, Dickinson & Co. 69,000 3,919,200
--------------------------------------------------------------
Boston Scientific Corp./(a)/ 143,000 5,083,650
--------------------------------------------------------------
DENTSPLY International Inc. 13,000 730,600
--------------------------------------------------------------
Fisher Scientific International Inc./(a)/ 32,000 1,996,160
--------------------------------------------------------------
FoxHollow Technologies, Inc./(a)(b)/ 53,200 1,308,188
--------------------------------------------------------------
Guidant Corp. 215,000 15,501,500
--------------------------------------------------------------
Hospira, Inc./(a)/ 7,000 234,500
--------------------------------------------------------------
IDEXX Laboratories, Inc./(a)/ 34,000 1,856,060
--------------------------------------------------------------
IntraLase Corp./(a)/ 51,700 1,213,916
--------------------------------------------------------------
Medtronic, Inc. 199,000 9,884,330
--------------------------------------------------------------
SonoSite, Inc./(a)/ 94,000 3,191,300
--------------------------------------------------------------
St. Jude Medical, Inc./(a)/ 260,000 10,901,800
--------------------------------------------------------------
Varian Inc./(a)/ 10,000 410,100
--------------------------------------------------------------
Varian Medical Systems, Inc./(a)/ 16,000 691,840
--------------------------------------------------------------
VNUS Medical Technologies, Inc./(a)(b)/ 67,200 908,544
--------------------------------------------------------------
67,408,068
--------------------------------------------------------------
HEALTH CARE FACILITIES-2.07%
Community Health Systems Inc./(a)/ 264,000 7,360,320
--------------------------------------------------------------
HEALTH CARE SERVICES-1.98%
Caremark Rx, Inc./(a)/ 88,000 3,469,840
--------------------------------------------------------------
DaVita, Inc./(a)/ 45,000 1,778,850
--------------------------------------------------------------
HMS Holdings Corp./(a)/ 160,000 1,438,400
--------------------------------------------------------------
PRA International/(a)/ 13,400 332,052
--------------------------------------------------------------
7,019,142
--------------------------------------------------------------
MARKET
SHARES VALUE
----------------------------------------------------------------------------
HEALTH CARE SUPPLIES-1.16%
Cooper Cos., Inc. (The) 22,000 $ 1,552,980
----------------------------------------------------------------------------
Sola International Inc./(a)/ 13,000 358,020
----------------------------------------------------------------------------
Symmetry Medical Inc./(a)/ 105,000 2,210,250
----------------------------------------------------------------------------
4,121,250
----------------------------------------------------------------------------
MANAGED HEALTH CARE-3.89%
Aetna Inc. 10,000 1,247,500
----------------------------------------------------------------------------
PacifiCare Health Systems, Inc./(a)/ 222,000 12,547,440
----------------------------------------------------------------------------
13,794,940
----------------------------------------------------------------------------
PHARMACEUTICALS-21.27%
Barr Pharmaceuticals Inc./(a)/ 4,000 182,160
----------------------------------------------------------------------------
Bristol-Myers Squibb Co. 290,000 7,429,800
----------------------------------------------------------------------------
Forest Laboratories, Inc./(a)/ 412,000 18,482,320
----------------------------------------------------------------------------
Impax Laboratories, Inc./(a)/ 112,000 1,778,560
----------------------------------------------------------------------------
Johnson & Johnson 6,000 380,520
----------------------------------------------------------------------------
Lilly (Eli) & Co. 92,000 5,221,000
----------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 70,000 2,457,700
----------------------------------------------------------------------------
Pfizer Inc. 673,000 18,096,970
----------------------------------------------------------------------------
Schering-Plough Corp. 10,000 208,800
----------------------------------------------------------------------------
Sepracor Inc./(a)/ 15,000 890,550
----------------------------------------------------------------------------
Theravance, Inc./(a)/ 2,200 39,380
----------------------------------------------------------------------------
Wyeth 477,000 20,315,430
----------------------------------------------------------------------------
75,483,190
----------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $224,915,645) 241,975,159
----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER
EQUITY INTERESTS-25.91%
CANADA-2.36%
QLT Inc. (Biotechnology)/(a)/ 520,000 8,361,600
----------------------------------------------------------------------------
FRANCE-5.67%
Sanofi-Aventis-ADR (Pharmaceuticals) 502,800 20,137,140
----------------------------------------------------------------------------
GERMANY-0.16%
Altana A.G. (Pharmaceuticals)/(c)/ 9,000 565,418
----------------------------------------------------------------------------
ISRAEL-2.03%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 241,220 7,202,829
----------------------------------------------------------------------------
JAPAN-11.73%
Eisai Co., Ltd. (Pharmaceuticals)/(c)/ 570,200 18,813,099
----------------------------------------------------------------------------
Fujisawa Pharmaceutical Co. Ltd. (Pharmaceuticals)/(c)/ 500,000 13,724,038
----------------------------------------------------------------------------
Kyorin Pharmaceutical Co., Ltd. (Pharmaceuticals)/(c)/ 180,000 2,741,554
----------------------------------------------------------------------------
Santen Pharmaceutical Co., Ltd. (Pharmaceuticals)/(c)/ 22,000 481,109
----------------------------------------------------------------------------
AIM V.I. HEALTH SCIENCES FUND
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
JAPAN-(Continued)
Takeda Pharmaceutical Co. Ltd. (Pharmaceuticals)/(c)/ 35,000 $ 1,767,891
- -------------------------------------------------------------------------------
Yamanouchi Pharmaceutical Co., Ltd. (Pharmaceuticals)/(c)/ 105,000 4,099,029
- -------------------------------------------------------------------------------
41,626,720
- -------------------------------------------------------------------------------
NETHERLANDS-0.18%
Akzo Nobel N.V.-ADR (Diversified Chemicals) 15,000 637,350
- -------------------------------------------------------------------------------
SWITZERLAND-2.65%
Novartis A.G.-ADR (Pharmaceuticals) 114,000 5,761,560
- -------------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)/(b)(c)/ 32,000 3,663,564
- -------------------------------------------------------------------------------
9,425,124
- -------------------------------------------------------------------------------
UNITED KINGDOM-1.13%
Shire Pharmaceuticals Group PLC-ADR
(Pharmaceuticals)/(a)/ 125,500 4,009,725
- -------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $80,732,040) 91,965,906
- -------------------------------------------------------------------------------
MARKET
SHARES VALUE
----------------------------------------------------------------------------
MONEY MARKET FUNDS-4.91%
Premier Portfolio (Cost $17,415,842)/(d)(e)/ 17,415,842 $ 17,415,842
----------------------------------------------------------------------------
TOTAL INVESTMENTS-99.00% (excluding
investments purchased with cash collateral
from securities loaned)
(Cost $323,063,527) 351,356,907
----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.98%
Premier Portfolio/(d)(e)(f)/ 3,476,275 3,476,275
----------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $3,476,275) 3,476,275
----------------------------------------------------------------------------
TOTAL INVESTMENTS-99.98% (Cost $326,539,802) 354,833,182
----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.02% 66,073
----------------------------------------------------------------------------
NET ASSETS-100.00% $354,899,255
----------------------------------------------------------------------------
Investment Abbreviations:
ADR - AmericanDepositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$45,855,702, which represented 12.92% of the Fund's Total Investments. See
Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
(f) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions upon
the borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. HEALTH SCIENCES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $305,647,685)* $333,941,065
- -----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $20,892,117) 20,892,117
- -----------------------------------------------------------------------------------
Total investments (cost $326,539,802) 354,833,182
- -----------------------------------------------------------------------------------
Foreign currencies, at market value (cost $293,242) 295,045
- -----------------------------------------------------------------------------------
Receivables for:
Investments sold 4,578,046
- -----------------------------------------------------------------------------------
Fund shares sold 101,360
- -----------------------------------------------------------------------------------
Dividends 290,805
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 19,549
- -----------------------------------------------------------------------------------
Total assets 360,117,987
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 876,930
- -----------------------------------------------------------------------------------
Fund shares reacquired 163,297
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 27,579
- -----------------------------------------------------------------------------------
Collateral upon return of securities loaned 3,476,275
- -----------------------------------------------------------------------------------
Accrued administrative services fees 595,253
- -----------------------------------------------------------------------------------
Accrued distribution fees-Series II 7
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 6,957
- -----------------------------------------------------------------------------------
Accrued operating expenses 72,434
- -----------------------------------------------------------------------------------
Total liabilities 5,218,732
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $354,899,255
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $369,111,006
- -----------------------------------------------------------------------------------
Undistributed net investment income (loss) (17,730)
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (42,490,923)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 28,296,902
- -----------------------------------------------------------------------------------
$354,899,255
- -----------------------------------------------------------------------------------
NET ASSETS:
Series I $354,888,886
- -----------------------------------------------------------------------------------
Series II $ 10,369
- -----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 18,779,524
- -----------------------------------------------------------------------------------
Series II 549.8
- -----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 18.90
- -----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 18.86
- -----------------------------------------------------------------------------------
* At December 31, 2004, securities with an aggregate market value of
$3,315,738 were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $110,595) $ 3,080,112
- --------------------------------------------------------------------------------
Dividends from affiliated money market funds (including securities
lending income of $22,459**) 344,307
- --------------------------------------------------------------------------------
Total investment income 3,424,419
- --------------------------------------------------------------------------------
EXPENSES:
Advisory fees 2,740,016
- --------------------------------------------------------------------------------
Administrative services fees 994,456
- --------------------------------------------------------------------------------
Custodian fees 69,762
- --------------------------------------------------------------------------------
Distribution fees-Series II 17
- --------------------------------------------------------------------------------
Transfer agent fees 22,715
- --------------------------------------------------------------------------------
Trustees' fees and retirement benefits 18,840
- --------------------------------------------------------------------------------
Other 200,089
- --------------------------------------------------------------------------------
Total expenses 4,045,895
- --------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset
arrangement (10,066)
- --------------------------------------------------------------------------------
Net expenses 4,035,829
- --------------------------------------------------------------------------------
Net investment income (loss) (611,410)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 49,657,573
- --------------------------------------------------------------------------------
Foreign currencies (224,679)
- --------------------------------------------------------------------------------
49,432,894
- --------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (25,354,155)
- --------------------------------------------------------------------------------
Foreign currencies 2,927
- --------------------------------------------------------------------------------
(25,351,228)
- --------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 24,081,666
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 23,470,256
- --------------------------------------------------------------------------------
** Dividends from affiliated money market funds are net of income rebate paid
to securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. HEALTH SCIENCES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (611,410)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 49,432,894
- -----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (25,351,228)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 23,470,256
- -----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (9,291,803)
- -----------------------------------------------------------------------------------------------------------------------------
Series II 9,795
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (9,282,008)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 14,188,248
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 340,711,007
- -----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(17,730) and $(16,312), respectively) $354,899,255
- -----------------------------------------------------------------------------------------------------------------------------
2003
- ----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (527,174)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign currencies 27,619,020
- ----------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 38,886,987
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 65,978,833
- ----------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I 42,051,544
- ----------------------------------------------------------------------------------------------------------------------------
Series II --
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions 42,051,544
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 108,030,377
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 232,680,630
- ----------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(17,730) and $(16,312), respectively) $340,711,007
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. HEALTH SCIENCES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Health Sciences Fund, formerly INVESCO VIF-Health Sciences Fund, (the
"Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust").
The Trust is a Delaware statutory trust registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end series management
investment company consisting of twenty-eight separate portfolios. The Fund
currently offers two classes of shares, Series I and Series II, both of which
are offered to insurance company separate accounts funding variable annuity
contracts and variable life insurance policies ("variable products"). Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. Current Securities and Exchange
Commission ("SEC") guidance, however, requires participating insurance
companies offering separate accounts to vote shares proportionally in
accordance with the instructions of the contract owners whose investments are
funded by shares of each portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Fund. On April 30,
2004, the Fund was restructured from a separate series of INVESCO Variable
Investment Funds, Inc. to a new series portfolio of the Trust.
The Fund's investment objective is to seek capital growth. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
AIM V.I. HEALTH SCIENCES FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from, (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.75% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $1,796,633. Prior to May 1,
2004, the Trust had an investment advisory agreement with INVESCO Funds Group,
Inc. ("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund
paid advisory fees under similar terms to IFG of $943,383. Effective January 1,
2005 through June 30, 2006, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.75% of
the first $250 million, plus 0.74% of the next $250 million, plus 0.73% of the
next $500 million, plus 0.72% of the next $1.5 billion, plus 0.71% of the next
$2.5 billion, plus 0.70% of the next $2.5 billion, plus 0.69% of the next $2.5
billion, plus 0.68% of the Fund's average daily net assets in excess of $10
billion. AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit Total Annual Operating Expenses
(excluding certain items discussed below) of each Series to 1.30% of average
daily net assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed
to waive advisory fees and/or reimburse expenses to the extent necessary to
limit total annual operating expenses (excluding certain items discussed below)
of each Series to 1.25% of average daily net assets. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the total annual
fund operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan
fees, if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales;
(v) extraordinary items (these are expenses that are not anticipated to arise
from the Fund's day-to-day
AIM V.I. HEALTH SCIENCES FUND
operations), or items designated as such by the Fund's Board of Trustees; (vi)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vii) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense
offset arrangements from which the Fund benefits are in the form of credits
that the Fund receives from banks where the Fund or its transfer agent has
deposit accounts in which it holds uninvested cash. Those credits are used to
pay certain expenses incurred by the Fund. AIM did not waive fees and/or
reimburse expenses during the period under this expense limitation. Further,
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of
25% of the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the Fund). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended December 31,
2004, AIM waived fees of $8,321.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $487 of expenses incurred by
the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $657,821, of which AIM retained $61,790 for services
provided by AIM. Prior to May 1, 2004, the Fund had an administrative services
agreement with IFG. For the period January 1, 2004 through April 30, 2004,
under similar terms, IFG was paid $336,635 for such services, of which IFG
retained $22,174 for services provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $22,715.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit total annual fund operating expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets through April 30, 2006. AIM Distributors did
not reimburse fees during the period under this expense limitation. Pursuant to
the Plan, for the period April 30, 2004 (date sales commenced) through December
31, 2004, the Series II shares paid $17.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI, and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
fund below have the same investment advisor and therefore, are considered to be
affiliated. The tables below show the transactions in and earnings from
investments in an affiliated money market fund for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------
Premier Portfolio $14,419,265 $305,502,507 $(302,505,930) $ -- $17,415,842 $321,848 $ --
- -----------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED GAIN
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* (LOSS)
- -------------------------------------------------------------------------------------------------------------
Premier Portfolio $ -- $172,051,776 $(168,575,501) $ -- $ 3,476,275 $ 22,459 $ --
- -------------------------------------------------------------------------------------------------------------
Total $14,419,265 $477,554,283 $(471,081,431) $ -- $20,892,117 $344,307 $ --
- -------------------------------------------------------------------------------------------------------------
* Dividend income is net of income rebate paid to securities lending
counterparties
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or
AIM V.I. HEALTH SCIENCES FUND
could be considered an affiliate by virtue of having a common investment
advisor (or affiliated investment advisors), common Trustees and/or common
officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under
the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended December 31, 2004, the Fund
engaged in purchases and sales of securities of $7,386,415 and $0, respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $1,258 under
an expense offset arrangement, which resulted in a reduction of the Fund's
total expenses of $1,258.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,448
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2004, securities with an aggregate value of $3,315,738 were
on loan to brokers. The loans were secured by cash collateral of $3,476,275
received by the Fund and subsequently invested in an affiliated money market
fund. On January 3, 2005 the Fund returned cash collateral of $29,517 for
previously loaned securities which were returned to the Fund by the borrower on
December 31, 2004. For the year ended December 31, 2004, the Fund received
dividends on cash collateral net of income rebate paid to counterparties of
$22,459 for securities lending transactions.
AIM V.I. HEALTH SCIENCES FUND
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
--------------------------------------------------
Unrealized appreciation--investments $ 26,088,767
--------------------------------------------------
Temporary book/tax differences (17,729)
--------------------------------------------------
Capital loss carryforward (40,282,789)
--------------------------------------------------
Shares of beneficial interest 369,111,006
--------------------------------------------------
Total net assets 354,899,255
--------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation on foreign currencies of $3,522.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $49,121,525 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
-------------------------------
December 31, 2010 $40,282,789
-------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $597,667,238 and $620,245,245, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $32,996,452
------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (6,911,207)
------------------------------------------------------------------------------
Net unrealized appreciation of investment securities $26,085,245
------------------------------------------------------------------------------
Cost of investments for tax purposes is $328,747,937.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses, and organizational expenses, on
December 31, 2004, undistributed net investment income (loss) was increased by
$609,992, undistributed net realized gain (loss) was increased by $224,679 and
shares of beneficial interest decreased by $834,671. This reclassification had
no effect on the net assets of the Fund.
AIM V.I. HEALTH SCIENCES FUND
NOTE 12--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2004 2003
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
Sold:
Series I 5,818,123 $ 105,377,219 10,447,367 $ 160,036,244
-----------------------------------------------------------------------
Series II/(b)/ 550 9,795 -- --
-----------------------------------------------------------------------
Reacquired:
Series I (6,430,438) (114,669,022) (7,974,644) (117,984,700)
-----------------------------------------------------------------------
(611,765) $ (9,282,008) 2,472,723 $ 42,051,544
-----------------------------------------------------------------------
/(a)/There are four entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 76% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services to
the Fund, AIM and/or AIM affiliates including but not limited to services
such as, securities brokerage, third party record keeping and account
servicing and administrative services. The trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.57 $ 13.75 $ 18.20 $ 20.89
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.03) (0.00)/(a)/ (0.01)/(a)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.36 3.85 (4.45) (2.62)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.33 3.82 (4.45) (2.63)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- -- (0.06)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- -- (0.06)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.90 $ 17.57 $ 13.75 $ 18.20
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 7.57% 27.78% (24.45)% (12.59)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $354,889 $340,711 $232,681 $343,304
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.11%/(c)/ 1.07% 1.07% 1.06%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.17)%/(c)/ (0.20)% (0.43)% (0.38)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 175% 114% 130% 88%
- ----------------------------------------------------------------------------------------------------------------------------
---------
---------
2000
- ----------------------------------------------------------------------------
Net asset value, beginning of period $ 16.02
- ----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05
- ----------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 4.84
- ----------------------------------------------------------------------------
Total from investment operations 4.89
- ----------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.00)
- ----------------------------------------------------------------------------
Distributions from net realized gains (0.02)
- ----------------------------------------------------------------------------
Total distributions (0.02)
- ----------------------------------------------------------------------------
Net asset value, end of period $ 20.89
- ----------------------------------------------------------------------------
Total return/(b)/ 30.54%
- ----------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $353,398
- ----------------------------------------------------------------------------
Ratio of expenses to average net assets 1.07%
- ----------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.68%
- ----------------------------------------------------------------------------
Portfolio turnover rate 145%
- ----------------------------------------------------------------------------
/(a)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.07) and $(0.07) for
the years ended December 31, 2002 and 2001, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $365,328,751.
AIM V.I. HEALTH SCIENCES FUND
NOTE 13--FINANCIAL HIGHLIGHTS (continued)
SERIES II
-----------------
APRIL 30, 2004
(DATE SALES
COMMENCED)
TO
DECEMBER 31, 2004
------------------------------------------------------------------------------
Net asset value, beginning of period $18.19
------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)
------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.72
------------------------------------------------------------------------------
Total from investment operations 0.67
------------------------------------------------------------------------------
Net asset value, end of period $18.86
------------------------------------------------------------------------------
Total return/(a)/ 3.68%
------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.36%/(b)/
------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.42)%/(b)/
------------------------------------------------------------------------------
Portfolio turnover rate/(c)/ 175%
------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce total returns.
/(b)/Ratios are annualized and based on average daily net assets of $10,069.
/(c)/Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
AIM V.I. HEALTH SCIENCES FUND
NOTE 14--LEGAL PROCEEDINGS (continued)
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the Federal and state securities laws; (ii) violation
of various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv)
breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; injunctive
relief; disgorgement of management fees; imposition of a constructive trust;
removal of certain directors and/or employees; various corrective measures
under ERISA; rescission of certain Funds' advisory agreements; interest; and
attorneys' and experts' fees.
AIM V.I. HEALTH SCIENCES FUND
NOTE 14--LEGAL PROCEEDINGS (continued)
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. HEALTH SCIENCES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM V.I. Health Sciences Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Health Sciences Fund,
formerly known as INVESCO VIF-Health Sciences Fund, (one of the funds
constituting AIM Variable Insurance Funds, formerly known as INVESCO Variable
Investment Funds, Inc., hereafter referred to as the "Fund") at December 31,
2004, 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 periods indicated, in conformity with accounting
principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. HEALTH SCIENCES FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Health Sciences Fund (now
known as AIM V.I. health Sciences Fund) ("Fund"), an investment portfolio of
INVESCO Variable Investment Funds, Inc. ("Company"), (now known as AIM Variable
Insurance Funds), a Delaware statutory trust, was held on April 2, 2004. The
meeting was held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investments
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
VOTES WITHHELD/
MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------
(2) Approval of a new Investment
Advisory Agreement with A I M
Advisors, Inc...................... 17,649,506 649,112 1,219,699
(3) Approval of a new Sub-Advisory
Agreement between A I M Advisors,
Inc. and INVESCO Institutional
(N.A.), Inc........................ 17,516,200 724,289 1,277,828
(4)* Approval of an Agreement and Plan
of Reorganization to redomesticate
each series portfolio of Company
as a new series portfolio of AIM
Variable Insurance Funds, an
existing Delaware statutory trust.. 88,123,016 3,299,467 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V.I. HEALTH SCIENCES FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
Interested Persons
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- --------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice President Officer, A I M Management Group Inc.
(financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris,
company) Inc. (unified messaging
provider)
- --------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & company)
McKenzie
- --------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- --------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, (Chairman) (registered
including the Boss Group Ltd. (private investment company);
investment and management) and Magellan Annuity and Life Re
Insurance Company (Holdings), Ltd.
(insurance company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- --------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- --------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and
Trustee Century Group, Inc. (government affairs Discovery Global
company) and Texana Timber LP Education Fund (non-
(sustainable forestry company) profit)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. HEALTH SCIENCES FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
DIRECTORSHIP(S)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 HELD BY
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered
investment
company)
- ---------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical
Trustee (California) Group, Inc.
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------
Other Officers
- ---------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- ---------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio
Manager, INVESCO Institutional (N.A.),
Inc.
- ---------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
AIM V.I. HEALTH SCIENCES FUND
AIM V.I. LEISURE FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-LEISURE FUND
WAS RENAMED AIM V.I. LEISURE FUND.
AIM V.I. LEISURE FUND seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I.LEISURE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
We are pleased to report that for the fiscal year ended December 31, 2004, AIM
V.I. Leisure Fund outperformed the S&P 500 Index, which represents the
performance of the U.S. stock market. While past performance cannot guarantee
comparable future results, we were pleased by the fund's performance.
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 13.40%
Series II Shares 13.22
S&P 500 Index (Broad Market Index /
Style-specific Index) 10.87
Source: Lipper, Inc.
================================================================================
AIM V.I. Leisure Fund outperformed the S&P 500 Index as a result of strong
stock selection and the general strength of consumer discretionary stocks, in
which the fund invests the bulk of its assets, relative to the broad market.
HOW WE INVEST
We manage the fund using a bottom-up investment approach, focusing on companies
that profit from consumer spending on leisure activities. This investment
approach is intended to identify businesses in leisure-related industries with
strong fundamentals and promising growth potential, and with valuation
characteristics below those of the broad market. We also seek to identify
managements that have long-term visions for their companies, and the skills
needed to grow their market share and earnings at faster rates than their
competitors. Just as we look for managements with long-term visions, we maintain
a long-term investment horizon when selecting stocks for the fund.
As a group, stocks in leisure-related industries tended to outperform the
broad market for the year, but lagged stocks in the energy, utilities and
telecommunication services sectors. Leisure-related industries tend to be
relatively broad-based, encompassing such diverse industries as media, gaming,
retail and travel. This profile provides a diverse set of investment
opportunities for the fund, and at the close of the period, fund assets were
invested across these areas.
MARKET CONDITIONS AND YOUR FUND
The economy showed signs of improvement during the fiscal year, as did the U.S.
stock market, particularly in the fourth quarter of 2004. The S&P 500 Index rose
10.87% for the year, and 9.23% in the fourth quarter alone. For much of the
year, there was concern that rising oil and gasoline prices might cause
consumers to reduce their discretionary spending. But we were pleasantly
surprised at how little impact record-high oil and gasoline prices had on
consumer spending and travel-related industries (such as hotels), in particular.
Consistent with our long-term investment horizon, we made only minor
adjustments to the fund's holdings during the fiscal year, maintaining the
fund's relatively low portfolio turnover rate. What changes we made to the
fund's holdings stemmed from our bottom-up investment process. This process led
us to trim select gaming stocks that have appreciated since we purchased them,
while adding retail and restaurant stocks whose valuations we considered more
attractive.
Some of the most significant contributors to the fund's performance for the
year included gaming and hotel stocks. Casino operator Harrah's Entertainment
was the fund's top performer and reflects our long-term investment approach. We
have owned Harrah's for more than six years and have been impressed with the
company's management, which has consistently grown its market share. Also,
Harrah's was one of the first casino operators to closely monitor same-store
sales and to design floor layout to maximize consumer satisfaction and
profitability. At the close of the year, Harrah's remained a top holding in the
fund because we believed the company is uniquely positioned to benefit from
liberalized gaming laws and accelerating casino construction, both in the United
States and elsewhere.
Starwood Hotels is another stock we have held for several years that
continues to add to fund performance. Starwood's brand names include St. Regis--
registered trademark--, Sheraton --registered trademark--, Westin --registered
trademark-- and W --registered trademark--. We have been impressed with
Starwood's innovative ability to take a basic product--a hotel room--and
differentiate it from that of its competitors, thereby increasing market share
and earnings.
================================================================================
PORTFOLIO COMPOSITION
By industry
1. Broadcasting & Cable TV 17.3%
2. Casinos & Gaming 14.5
3. Hotels, Resorts & Cruise Lines 11.8
4. Movies & Entertainment 10.2
5. Advertising 9.0
6. Publishing 7.3
7. Brewers 4.3
8. Apparel, Accessories & Luxury Goods 3.7
9. Investment Companies-Exchange Traded Funds 3.6
10. Multi-Sector Holdings 3.6
11 Other industries, each less than 3% of net assets 12.4
Money Market Funds Plus Other Assets Less Liabilities 2.3
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Harrah's Entertainment, Inc. 6.3%
2. Omnicom Group Inc. 6.1
3. International Game Technology 5.4
4. Liberty Media Corp.-Class A 3.6
5. Cablevision Systems New York Group-Class A 3.3
6. News Corp.-Class A 3.2
7. Starwood Hotels & Resorts Worldwide, Inc. 2.7
8. Groupe Bruxelles Lambert S.A. (Belgium) 2.6
9. Time Warner Inc. 2.5
10. Polo Ralph Lauren Corp. 2.1
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding money market fund holdings.
================================================================================
2
AIM V.I. LEISURE FUND
The fund's broadcasting holdings, as a group, detracted from fund
performance for the year. While advertising revenues increased as the economy
strengthened, that increase was not as robust as we had anticipated. This was
due, at least in part, to an increase in spending on Internet advertising and
other alternatives to traditional radio and television spots.
Univision, the Spanish-language media company, was one fund holding whose
stock performance was affected by these trends. Despite reporting record second-
and third-quarter results, the company's stock price declined for the year.
Nonetheless, we continued to own it at the close of the year, in keeping with
our long-term investment horizon. We believed that Univision's dominant market
position may benefit from long-term demographic trends that give the company a
unique potential to continue to grow its earnings.
Hollywood Entertainment was another holding that disappointed us. Investors
worried that increasing DVD purchases, and greater Internet downloading, might
result in less rental business, thereby hurting Hollywood's revenues and
earnings. While the company's growth prospects have diminished in recent years,
we initially believed the market had overreacted to these concerns. We believed
that Hollywood's ample free cash flow and strong balance sheet would enable
management to overcome these trends and continue to grow the company. However,
near the end of the year, two competitors made bids for the company that were
disappointing in price; that clouded the company's prospects and changed our
outlook. We sold our position in Hollywood before the close of the fiscal year.
IN CLOSING
At the close of the fiscal year, the fund was exposed to a variety of
leisure-related industries based on our bottom-up investment approach. The
fund's net assets totaled $56.0 million and the number of fund holdings totaled
82. While we are pleased that the fund again this year outperformed the S&P 500
Index, we recognize that sectors go in and out of investor favor, and that there
are likely to be periods in which the fund will underperform the broad market.
During such periods, investors would do well to remember that spending on
leisure-related activities has grown faster than the overall market over the
last 40 years. That is why we maintain a long-term investment horizon, and why
we urge shareholders to do the same. As always, we thank you for your continuing
investment in AIM V.I. Leisure Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors,
Inc. makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
[GREENBERG PHOTO]
MARK D. GREENBERG, Chartered Financial Analyst, senior portfolio manager, is the
portfolio manager of AIM V.I. Leisure Fund (prior to 2004, INVESCO VIF Leisure
Fund). Mr. Greenberg has 24 years of experience in the investment industry. He
began his career in 1980, and media and entertainment stocks became his focus in
1983. He joined INVESCO in 1996. Mr. Greenberg attended City University in
London, England, and received his B.S.B.A. in economics with a specialization in
finance from Marquette University.
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in a single-sector or single-region mutual fund involves greater risk
and potential reward than investing in a more diversified fund.
Investing in small and mid-size companies involves risks not associated
with investing in more established companies, including business risk,
significant stock price fluctuations and illiquidity.
International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
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 holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies. The fund may invest
up to 25% of its assets in the securities of non-U.S. issuers. Securities of
Canadian issuers and American Depositary Receipts are not subject to this 25%
limitation.
3
AIM V.I. LEISURE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs, including management
fees; distribution and/or service fees (12b-l); and other fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period, July 1, 2004 -
December 31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (07/01/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1,117.70 $6.92 $1,018.60 $6.60
Series II 1,000.00 1,116.80 7.72 1,017.85 7.35
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual expenses
and will differ from the hypothetical ending account value which is based on the
fund's expense ratio and a hypothetical annual return of 5% before expenses. The
actual cumulative return at net asset value for the period July 1, 2004, to
December 31, 2004, was 11.77% and 11.68% for Series I and Series II shares,
respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (1.30% and 1.45%
for Series I and Series II shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half
year period).
================================================================================
4
AIM V.I. LEISURE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
Inception (4/30/02) 8.48%
1 Year 13.40
Series II Shares
Inception 8.24%
1 Year 13.22
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the blended returns of the historical performance of the fund's
Series II shares since their inception and the restated historical performance
of the fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the higher Rule 12b-l fees applicable to the Series
II shares. The inception date of the fund's Series I shares is 4/30/02. The
inception date of the fund's Series II shares is 4/30/04. The Series I and
Series II shares invest in the same portfolio of securities and will have
substantially similar performance, except to the extent that expenses borne by
each class differ.
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or financial advisor for the most recent
month-end variable product performance. Performance figures reflect fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
AIM V.I. Leisure Fund, a series portfolio of AIM Variable Insurance Funds,
is currently offered through insurance companies issuing variable products. You
cannot purchase shares of the
================================================================================
RESULTS OF A $10,000 INVESTMENT
4/30/02-12/31/04
[MOUNTAIN CHART]
AIM V.I. Leisure Fund- S&P 500
Date Series I Index
- ------- ---------------------- -------
4/30/02 $10000 $10000
05/02 10030 9927
06/02 9010 9220
07/02 8400 8501
08/02 8610 8557
09/02 8110 7628
10/02 8320 8299
11/02 8950 8786
12/02 8520 8271
01/03 8320 8054
02/03 8039 7933
03/03 8260 8010
04/03 8959 8670
05/03 9479 9126
06/03 9509 9242
07/03 9649 9406
08/03 9969 9589
09/03 9699 9487
10/03 10229 10023
11/03 10478 10112
12/03 10960 10641
1/04 11070 10837
2/04 11280 10987
3/04 11260 10822
4/04 11090 10652
5/04 11100 10798
6/04 11120 11008
7/04 10479 10643
8/04 10419 10686
9/04 10889 10802
10/04 11269 10967
11/04 11840 11411
12/04 $12429 $11798
Source: Lipper, Inc.
================================================================================
fund directly. Performance figures given represent the fund and are not intended
to reflect actual variable product values. They do not reflect sales charges,
expenses and fees assessed in connection with a variable product. Sales charges,
expenses and fees, which are determined by the variable product issuers, will
vary and will lower the total return.*
Had the advisor not waived fees and/or reimbursed expenses, performance
would have been lower.
ABOUT THE INDEX USED IN THIS REPORT
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P
500--registered trademark-- Index) is an index of common stocks frequently used
as a general measure of U.S. stock market performance.
The fund is not managed to track the performance of any particular index,
including the index defined here, and consequently, the performance of the fund
may deviate significantly from the performance of the index.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standards & Poor's.
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
-------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-79.03%
ADVERTISING-6.87%
Harte-Hanks, Inc. 15,577 $ 404,690
-------------------------------------------------------------------
Omnicom Group Inc. 40,824 3,442,280
-------------------------------------------------------------------
3,846,970
-------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS-
2.96%
Carter's, Inc./(a)/ 3,600 122,364
-------------------------------------------------------------------
Columbia Sportswear Co./(a)/ 5,700 339,777
-------------------------------------------------------------------
Polo Ralph Lauren Corp. 28,119 1,197,869
-------------------------------------------------------------------
1,660,010
-------------------------------------------------------------------
BREWERS-2.13%
Anheuser-Busch Cos., Inc. 23,490 1,191,648
-------------------------------------------------------------------
BROADCASTING & CABLE TV-15.98%
Cablevision Systems New York Group-Class A/(a)/ 74,270 1,849,323
-------------------------------------------------------------------
Clear Channel Communications, Inc. 18,915 633,463
-------------------------------------------------------------------
Comcast Corp.-Class A/(a)/ 27,234 906,348
-------------------------------------------------------------------
DIRECTV Group, Inc. (The)/(a)/ 9,297 155,632
-------------------------------------------------------------------
EchoStar Communications Corp.-Class A 22,840 759,202
-------------------------------------------------------------------
Gray Television, Inc. 38,085 590,318
-------------------------------------------------------------------
Liberty Media Corp.-Class A/(a)/ 182,293 2,001,577
-------------------------------------------------------------------
Liberty Media Corp.-Class B/(a)/ 10,500 121,800
-------------------------------------------------------------------
Liberty Media International, Inc.-Class A/(a)/ 8,799 406,778
-------------------------------------------------------------------
NTL Inc./(a)/ 3,730 272,141
-------------------------------------------------------------------
Scripps Co. (E.W.) (The)-Class A 9,950 480,386
-------------------------------------------------------------------
Sinclair Broadcast Group, Inc.-Class A 31,138 286,781
-------------------------------------------------------------------
Spanish Broadcasting System, Inc.-Class A/(a)/ 16,733 176,701
-------------------------------------------------------------------
Univision Communications Inc.-Class A/(a)/ 10,514 307,745
-------------------------------------------------------------------
8,948,195
-------------------------------------------------------------------
CASINOS & GAMING-14.54%
Aztar Corp./(a)/ 4,400 153,648
-------------------------------------------------------------------
Harrah's Entertainment, Inc. 52,570 3,516,407
-------------------------------------------------------------------
International Game Technology 87,600 3,011,688
-------------------------------------------------------------------
Mandalay Resort Group 4,260 300,032
-------------------------------------------------------------------
MGM MIRAGE/(a)/ 6,939 504,743
-------------------------------------------------------------------
Wynn Resorts, Ltd./(a)/ 9,723 650,663
-------------------------------------------------------------------
8,137,181
-------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-1.55%
Cendant Corp. 37,011 865,317
-------------------------------------------------------------------
FOOTWEAR-0.72%
NIKE, Inc.-Class B 4,477 406,019
-------------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.94%
Target Corp. 10,120 $ 525,532
--------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.41%
Electronic Arts Inc./(a)/ 3,722 229,573
--------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-5.96%
Hilton Hotels Corp. 40,126 912,465
--------------------------------------------------------------
Marriott International, Inc.-Class A 14,151 891,230
--------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 26,267 1,533,993
--------------------------------------------------------------
3,337,688
--------------------------------------------------------------
INTERNET RETAIL-0.82%
IAC/InterActiveCorp/(a)/ 16,610 458,768
--------------------------------------------------------------
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-3.64%
iShares Russell 1000 Index Fund 6,601 430,187
--------------------------------------------------------------
iShares Russell 3000 Index Fund 7,900 546,285
--------------------------------------------------------------
iShares S&P 500 Index Fund 4,359 527,439
--------------------------------------------------------------
S&P 500 Depositary Receipts Trust-Series 1 4,420 534,245
--------------------------------------------------------------
2,038,156
--------------------------------------------------------------
LEISURE FACILITIES-0.31%
Cedar Fair, L.P. 5,277 173,613
--------------------------------------------------------------
LEISURE PRODUCTS-1.87%
Hasbro, Inc. 20,395 395,255
--------------------------------------------------------------
Leapfrog Enterprises, Inc.-Class A/(a)/ 16,190 220,184
--------------------------------------------------------------
Marvel Enterprises, Inc./(a)/ 7,020 143,770
--------------------------------------------------------------
Mattel, Inc. 14,670 285,918
--------------------------------------------------------------
1,045,127
--------------------------------------------------------------
MOTORCYCLE MANUFACTURERS-0.21%
Harley-Davidson, Inc. 1,900 115,425
--------------------------------------------------------------
MOVIES & ENTERTAINMENT-10.24%
DreamWorks Animation SKG, Inc.-Class A/(a)/ 1,700 63,767
--------------------------------------------------------------
Fox Entertainment Group, Inc.-Class A/(a)/ 13,890 434,201
--------------------------------------------------------------
Metro-Goldwyn-Mayer Inc./(a)/ 26,289 312,313
--------------------------------------------------------------
News Corp.-Class A 94,500 1,763,370
--------------------------------------------------------------
Pixar/(a)/ 2,232 191,082
--------------------------------------------------------------
Regal Entertainment Group-Class A 10,137 210,343
--------------------------------------------------------------
Time Warner Inc./(a)/ 71,860 1,396,958
--------------------------------------------------------------
Viacom Inc.-Class A 9,063 336,056
--------------------------------------------------------------
Viacom Inc.-Class B 10,762 391,629
--------------------------------------------------------------
Walt Disney Co. (The) 22,670 630,226
--------------------------------------------------------------
5,729,945
--------------------------------------------------------------
AIM V.I. LEISURE FUND
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
PERSONAL PRODUCTS-0.39%
NBTY, Inc./(a)/ 9,200 $ 220,892
-----------------------------------------------------------------------------
PUBLISHING-7.34%
Belo Corp.-Class A 21,316 559,332
-----------------------------------------------------------------------------
Gannett Co., Inc. 8,690 709,973
-----------------------------------------------------------------------------
Knight-Ridder, Inc. 13,661 914,467
-----------------------------------------------------------------------------
McClatchy Co. (The)-Class A 9,296 667,546
-----------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 5,149 471,339
-----------------------------------------------------------------------------
Tribune Co. 18,600 783,804
-----------------------------------------------------------------------------
4,106,461
-----------------------------------------------------------------------------
RESTAURANTS-2.15%
CBRL Group, Inc. 19,898 832,731
-----------------------------------------------------------------------------
Yum! Brands, Inc. 7,889 372,203
-----------------------------------------------------------------------------
1,204,934
-----------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $37,198,071) 44,241,454
-----------------------------------------------------------------------------
FOREIGN STOCKS & OTHER
EQUITY INTERESTS-18.65%
BELGIUM-3.43%
Compagnie Nationale a Portefeuille
(Multi-Sector Holdings)/(b)/ 585 123,565
-----------------------------------------------------------------------------
Groupe Bruxelles Lambert S.A. (Multi-Sector Holdings)/(b)/ 18,124 1,468,687
-----------------------------------------------------------------------------
InBev (Brewers)/(b)/ 8,479 327,634
-----------------------------------------------------------------------------
1,919,886
-----------------------------------------------------------------------------
BRAZIL-0.64%
Companhia de Bebidas das Americas-ADR (Brewers) 12,730 360,641
-----------------------------------------------------------------------------
CANADA-0.89%
Intrawest Corp. (Hotels, Resorts & Cruise Lines) 21,622 497,090
-----------------------------------------------------------------------------
DENMARK-0.95%
Carlsberg A.S.-Class B (Brewers)/(b)/ 10,526 530,988
-----------------------------------------------------------------------------
FRANCE-1.86%
Accor S.A. (Hotels, Resorts & Cruise Lines)/(b)/ 14,346 626,879
-----------------------------------------------------------------------------
JC Decaux S.A. (Advertising)/(a)(b)/ 14,112 411,416
-----------------------------------------------------------------------------
1,038,295
-----------------------------------------------------------------------------
MARKET
SHARES VALUE
- --------------------------------------------------------------------------------
HONG KONG-0.12%
Television Broadcasts Ltd.-ADR
(Broadcasting & Cable TV)/(c)/ 6,976 $ 64,800
- --------------------------------------------------------------------------------
JAPAN-0.30%
Sony Corp.-ADR (Consumer Electronics) 4,341 169,125
- --------------------------------------------------------------------------------
LIBERIA-1.13%
Royal Caribbean Cruises Ltd.
(Hotels, Resorts & Cruise Lines) 11,642 633,791
- --------------------------------------------------------------------------------
NETHERLANDS-1.23%
Jetix Europe N.V. (Broadcasting & Cable TV)/(a)(b)/ 36,129 687,889
- --------------------------------------------------------------------------------
PANAMA-2.06%
Carnival Corp. (Hotels, Resorts & Cruise Lines) 20,013 1,153,349
- --------------------------------------------------------------------------------
SPAIN-0.59%
NH Hoteles, S.A. (Hotels, Resorts & Cruise Lines)/(b)/ 25,189 332,854
- --------------------------------------------------------------------------------
SWITZERLAND-1.47%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)/(b)/ 12,811 425,373
- --------------------------------------------------------------------------------
Pargesa Holding A.G.-Class B (Multi-Sector Holdings)/(b)/ 114 400,154
- --------------------------------------------------------------------------------
825,527
- --------------------------------------------------------------------------------
UNITED KINGDOM-3.98%
Allied Domecq PLC (Distillers & Vintners)/(b)/ 113,050 1,109,986
- --------------------------------------------------------------------------------
Diageo PLC (Distillers & Vintners)/(b)/ 23,649 337,514
- --------------------------------------------------------------------------------
WPP Group PLC (Advertising)/(b)/ 71,155 779,643
- --------------------------------------------------------------------------------
2,227,143
- --------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $7,600,369) 10,441,378
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS-2.50%
Premier Portfolio (Cost $1,397,060)/(d)(e)/ 1,397,060 1,397,060
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.18% (Cost $46,195,500) 56,079,892
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.18%) (101,335)
- --------------------------------------------------------------------------------
NET ASSETS-100.00% $55,978,557
- --------------------------------------------------------------------------------
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$7,562,582, which represented 13.49% of the Fund's Total Investments. See
Note 1A.
(c) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The market value of this security at December 31, 2004
represented 0.12% of the Fund's Total Investments. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, Shares of
Premier Portfolio owned by the Fund will be designated as of Investor Class
shares.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. LEISURE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $44,798,440) $54,682,832
- ------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $1,397,060) 1,397,060
- ------------------------------------------------------------------------------------
Total investments (cost $46,195,500) 56,079,892
- ------------------------------------------------------------------------------------
Dividends receivable 72,342
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 3,703
- ------------------------------------------------------------------------------------
Total assets 56,155,937
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 63,514
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 3,969
- ------------------------------------------------------------------------------------
Accrued administrative services fees 75,096
- ------------------------------------------------------------------------------------
Accrued distribution fees-Series II 4
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 170
- ------------------------------------------------------------------------------------
Accrued operating expenses 34,627
- ------------------------------------------------------------------------------------
Total liabilities 177,380
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $55,978,557
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $45,224,988
- ------------------------------------------------------------------------------------
Undistributed net investment income (80,174)
- ------------------------------------------------------------------------------------
Undistributed net realized gain from investment securities and foreign
currencies 948,771
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign currencies 9,884,972
- ------------------------------------------------------------------------------------
$55,978,557
- ------------------------------------------------------------------------------------
NET ASSETS:
Series I $55,967,356
- ------------------------------------------------------------------------------------
Series II $ 11,201
- ------------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 4,519,277
- ------------------------------------------------------------------------------------
Series II 905.3
- ------------------------------------------------------------------------------------
Series I:
Net asset value per share $ 12.38
- ------------------------------------------------------------------------------------
Series II:
Net asset value per share $ 12.37
- ------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $16,218) $ 532,529
- ---------------------------------------------------------------------------------
Dividends from affiliated money market funds 17,148
- ---------------------------------------------------------------------------------
Total investment income 549,677
- ---------------------------------------------------------------------------------
EXPENSES:
Advisory fees 320,330
- ---------------------------------------------------------------------------------
Administrative services fees 145,439
- ---------------------------------------------------------------------------------
Custodian fees 25,185
- ---------------------------------------------------------------------------------
Distribution fees-Series II 17
- ---------------------------------------------------------------------------------
Transfer agent fees 2,375
- ---------------------------------------------------------------------------------
Trustees' fees and retirement benefits 11,121
- ---------------------------------------------------------------------------------
Professional fees 41,383
- ---------------------------------------------------------------------------------
Other 26,086
- ---------------------------------------------------------------------------------
Total expenses 571,936
- ---------------------------------------------------------------------------------
Less: Fees waived, expenses reimbursed and expense offset arrangement (22,749)
- ---------------------------------------------------------------------------------
Net expenses 549,187
- ---------------------------------------------------------------------------------
Net investment income 490
- ---------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 1,184,171
- ---------------------------------------------------------------------------------
Foreign currencies (2,571)
- ---------------------------------------------------------------------------------
1,181,600
- ---------------------------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 5,083,158
- ---------------------------------------------------------------------------------
Foreign currencies 797
- ---------------------------------------------------------------------------------
5,083,955
- ---------------------------------------------------------------------------------
Net gain from investment securities and foreign currencies 6,265,555
- ---------------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,266,045
- ---------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. LEISURE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004 2003
------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 490 $ (23,647)
------------------------------------------------------------------------------
Net realized gain (loss) from investment
securities and foreign currencies 1,181,600 (12,745)
------------------------------------------------------------------------------
Change in net unrealized appreciation of
investment securities and foreign currencies 5,083,955 4,874,993
------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 6,266,045 4,838,601
------------------------------------------------------------------------------
Distributions to shareholders from net investment
income:
Series I (165,844) --
------------------------------------------------------------------------------
Series II (34) --
------------------------------------------------------------------------------
Total distributions from net investment income (165,878) --
------------------------------------------------------------------------------
Distributions to shareholders from net realized
gains:
Series I (44,667) --
------------------------------------------------------------------------------
Series II (9) --
------------------------------------------------------------------------------
Total distributions from net realized gains (44,676) --
------------------------------------------------------------------------------
Decrease in net assets resulting from
distributions (210,554) --
------------------------------------------------------------------------------
Share transactions-net:
Series I 15,488,580 23,489,298
------------------------------------------------------------------------------
Series II 10,043 --
------------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 15,498,623 23,489,298
------------------------------------------------------------------------------
Net increase in net assets 21,554,114 28,327,899
------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 34,424,443 6,096,544
------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $(80,174) and $(27,677),
respectively) $55,978,557 $34,424,443
------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. LEISURE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Leisure Fund, formerly INVESCO VIF-Leisure Fund, (the "Fund") is a
series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a
Delaware statutory trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end series management investment
company consisting of twenty-eight separate portfolios. The Fund currently
offers two classes of shares, Series I and Series II, both of which are offered
to insurance company separate accounts funding variable annuity contracts and
variable life insurance policies ("variable products"). Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. Current Securities and Exchange Commission ("SEC")
guidance, however, requires participating insurance companies offering separate
accounts to vote shares proportionally in accordance with the instructions of
the contract owners whose investments are funded by shares of each portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. On April 30, 2004, the Fund was restructured from a separate
series of INVESCO Variable Investment Funds, Inc. to a new series portfolio of
the Trust.
The Fund's investment objective is to seek capital growth. Companies are
listed in the Schedule of Investments based on the country in which they are
organized.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
AIM V.I. LEISURE FUND
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from, (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.75% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $225,238. Prior to May 1, 2004,
the Trust had an investment advisory agreement with INVESCO Funds Group, Inc.
("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund paid
advisory fees under similar terms to IFG of $95,092. AIM has contractually
agreed to waive advisory fees and/or reimburse expenses to the extent necessary
to limit total annual operating expenses (excluding certain items discussed
below) of each Series to 1.30% of average daily net assets, through April 30,
2006. Prior to May 1, 2004, AIM had agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit total annual operating
expenses (excluding certain items discussed below) of each Series to 1.25% of
average daily net assets. In determining the advisor's obligation to waive
advisory fees and/or reimburse expenses, the following expenses are not taken
into account, and could cause the total annual fund operating expenses to
exceed the limit stated above: (i) Rule 12b-1 plan fees, if any; (ii) interest;
(iii) taxes; (iv) dividend expense on short sales; (v) extraordinary items
(these are expenses that are not anticipated to arise from the Fund's
day-to-day operations), or items designated as such by the Fund's Board of
Trustees; (vi) expenses related to a merger or reorganization, as approved by
the Fund's Board of Trustees; and (vii) expenses that the Fund has incurred but
did not actually pay because of
AIM V.I. LEISURE FUND
an expense offset arrangement. Currently, the only expense offset arrangements
from which the Fund benefits are in the form of credits that the Fund receives
from banks where the Fund or its transfer agent has deposit accounts in which
it holds uninvested cash. Those credits are used to pay certain expenses
incurred by the Fund. Further, AIM has voluntarily agreed to waive advisory
fees of the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors. For the year ended December 31, 2004, AIM waived
fees of $22,726.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $108,534, of which AIM retained $33,470 for services
provided by AIM. Prior to May 1, 2004, the Fund had an administrative services
agreement with IFG. For the period January 1, 2004 through April 30, 2004,
under similar terms, IFG was paid $36,905 for such services, of which IFG
retained $5,208 for services provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AIS $2,375.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit total annual fund operating expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets, through April 30, 2006. Pursuant to the
Plan, for the period April 30, 2004 (date sales commenced) through December 31,
2004, the Series II shares paid $10 after AIM Distributors waived Plan fees of
$7.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market fund below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in an
affiliated money market fund for the year ended December 31, 2004.
Investments of Daily Available Cash Balances:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
Premier Portfolio $1,040,996 $19,446,525 $(19,090,461) $ -- $1,397,060 $17,148 $ --
- ---------------------------------------------------------------------------------------------------------
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures each transaction is effected at the current market
price. Pursuant to these procedures, during the year ended December 31, 2004,
the Fund engaged in purchases and sales of securities of $0 and $78,030,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions. For the year ended December 31,
2004, the Fund received credits in transfer agency fees of $16 under an expense
offset arrangement, which resulted in a reduction of the Fund's total expenses
of $16.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
AIM V.I. LEISURE FUND
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $1,882
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31,
2004 and 2003 was as follows:
2004 2003
--------------------------------------
Distributions paid from:
Ordinary income $165,878 $--
--------------------------------------
Long-term capital gain 44,676 --
--------------------------------------
Total distributions $210,554 $--
--------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
----------------------------------------------------
Undistributed ordinary income $ 945,695
----------------------------------------------------
Undistributed long-term gain 710,900
----------------------------------------------------
Undistributed appreciation--investments 9,099,803
----------------------------------------------------
Temporary book/tax differences (2,829)
----------------------------------------------------
Shares of beneficial interest 45,224,988
----------------------------------------------------
Total net assets $55,978,557
----------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, mark to market of certain passive foreign investment companies and
partnership basis adjustments. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation on foreign
currencies of $580.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
AIM V.I. LEISURE FUND
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $21,024,836 and $6,084,426, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $9,594,133
------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (494,910)
------------------------------------------------------------------------
Net unrealized appreciation of investment securities $9,099,223
------------------------------------------------------------------------
Cost of investments for tax purposes is $46,980,669.
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of passive foreign
investment companies and foreign currencies, on December 31, 2004,
undistributed net investment income was increased by $112,891, undistributed
net realized gain was decreased by $112,553 and shares of beneficial interest
decreased by $338. This reclassification had no effect on the net assets of the
Fund.
NOTE 11--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
- ------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
2004 2003
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------
Sold:
Series I 1,824,898 $20,387,248 2,580,127 $24,801,939
- ------------------------------------------------------------------------------------
Series II/(b)/ 902 10,000 -- --
- ------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I 17,426 210,511 -- --
- ------------------------------------------------------------------------------------
Series II/(b)/ 3 43 -- --
- ------------------------------------------------------------------------------------
Reacquired:
Series I (463,174) (5,109,179) (155,854) (1,312,641)
- ------------------------------------------------------------------------------------
1,380,055 $15,498,623 2,424,273 $23,489,298
- ------------------------------------------------------------------------------------
/(a)/There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 100% of the outstanding shares of
the Fund. The Fund and the Fund's principal underwriter or advisor, are
parties to participation agreements with these entities whereby these
entities sell units of interest in separate accounts funding variable
products that are invested in the Fund. The Fund, AIM and/or AIM
affiliates may make payments to this entity, which is considered to be
related to the Fund, for providing services to the Fund, AIM and/or
affiliates including but not limited to services such as, securities
brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by this shareholder is also
owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
AIM V.I. LEISURE FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
-----------------------------------
APRIL 30, 2002
(DATE OPERATIONS
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
--------------------- 2002
2004 2003 ----------------
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.96 $ 8.52 $ 10.00
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00 (0.00) (0.00)/(a)/
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.47 2.44 (1.48)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 1.47 2.44 (1.48)
- -------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04) -- --
- -------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.01) -- --
- -------------------------------------------------------------------------------------------------------------
Total distributions (0.05) -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.38 $ 10.96 $ 8.52
- -------------------------------------------------------------------------------------------------------------
Total return/(b)/ 13.40% 28.64% (14.80)%
- -------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $55,967 $34,424 $ 6,097
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.29%/(c)/ 1.26% 1.29%/(d)/
- -------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.34%/(c)/ 1.64% 3.96%/(d)/
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 0.00%/(c)/ (0.14)% (0.30)%/(d)/
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 15% 22% 15%
- -------------------------------------------------------------------------------------------------------------
/(a)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.01) for the period
April 30, 2002 (date operations commenced) to December 31, 2002.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $42,703,968.
/(d)/Annualized
/(e)/Not annualized for periods less than one year.
AIM V.I. LEISURE FUND
NOTE 12--FINANCIAL HIGHLIGHTS (continued) SERIES II
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
-----------------------------------------------------------------------------
Net asset value, beginning of period $11.09
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)
-----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.35
-----------------------------------------------------------------------------
Total from investment operations 1.33
-----------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04)
-----------------------------------------------------------------------------
Distributions from net realized gains (0.01)
-----------------------------------------------------------------------------
Total distributions (0.05)
-----------------------------------------------------------------------------
Net asset value, end of period $12.37
-----------------------------------------------------------------------------
Total return/(a)/ 11.98%
-----------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11
-----------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursement 1.45%/(b)/
-----------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.60%/(b)/
-----------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.16)%/(b)/
-----------------------------------------------------------------------------
Portfolio turnover rate/(c)/ 15%
-----------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(b)/Ratios are annualized and based on average daily net assets of $9,989.
/(c)/Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
AIM V.I. LEISURE FUND
NOTE 13--LEGAL PROCEEDINGS (continued)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the
AIM V.I. LEISURE FUND
NOTE 13--LEGAL PROCEEDINGS (continued)
Federal and state securities laws; (ii) violation of various provisions of
ERISA; (iii) breach of fiduciary duty; and/or (iv) breach of contract. These
lawsuits were initiated in both Federal and state courts and seek such remedies
as compensatory damages; restitution; injunctive relief; disgorgement of
management fees; imposition of a constructive trust; removal of certain
directors and/or employees; various corrective measures under ERISA; rescission
of certain Funds' advisory agreements; interest; and attorneys' and experts'
fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. LEISURE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM V.I. Leisure Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Leisure Fund, formerly
known as INVESCO VIF-Leisure Fund, (one of the funds constituting AIM Variable
Insurance Funds, formerly known as INVESCO Variable Investment Funds, Inc.,
hereafter referred to as the "Fund") at December 31, 2004, 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 periods indicated, in conformity with accounting principles generally
accepted in the United States of America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. LEISURE FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Leisure Fund (now known as AIM
V.I. Leisure Fund), ("Fund"), an investment portfolio of INVESCO Variable
Investment Funds, Inc. ("Company"), (now known as AIM Variable Insurance
Funds), a Delaware statutory trust, was held on April 2, 2004. The meeting was
held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
MATTER VOTES FOR
- -------------------------------------------------------------------------------------------------------------------------------
(2) Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 2,753,677
(3) Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 2,745,317
(4)* Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 88,123,016
VOTES
MATTER AGAINST
- -------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 185,896
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 198,339
Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 3,299,467
WITHHELD/
MATTER ABSTENTIONS
- --------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc...................................... 232,581
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc... 228,498
Approval of an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware statutory trust........................ 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V.I. LEISURE FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
Interested Persons
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 Trustee 2003 Director, President and Chief Executive None
and Executive Vice President Officer, A I M Management Group Inc.
(financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris,
company) Inc. (unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & company)
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, (Chairman) (registered
including the Boss Group Ltd. (private investment company);
investment and management) and Magellan Annuity and Life Re
Insurance Company (Holdings), Ltd. (insurance
company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund
company) and Texana Timber LP (non-profit)
(sustainable forestry company)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. LEISURE FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Other Officers
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio
Manager, INVESCO Institutional (N.A.),
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 63.37% is eligible for the dividends received deduction for
corporation. The Fund distributed long-term capital gains of $44,676 for the
Fund's tax year ended December 31, 2004.
AIM V.I. LEISURE FUND
AIM V.I. SMALL COMPANY GROWTH FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF - SMALL COMPANY GROWTH FUND
WAS RENAMED AIM V.I. SMALL COMPANY GROWTH FUND.
AIM V.I. SMALL COMPANY GROWTH FUND
seeks capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. SMALL COMPANY GROWTH FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Stocks, as measured by most domestic market indexes, rallied in the fourth
quarter of 2004, enabling the fund to post double-digit returns for the year.
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 13.90%
Series II Shares 13.73
S&P 500 Index (Broad Market Index) 10.87
Russell 2000 Growth Index
(Style-specific Index) 14.31
Lipper Small-Cap Growth Fund Index
(Peer Group Index) 10.79
Source: Lipper, Inc.
================================================================================
For the year, small-cap stocks outperformed large-cap stocks. The fund's
focus on small-cap stocks enabled it to outperform the large-cap oriented S&P
500 Index. The fund tracked the Russell 2000 Growth Index as its health care and
telecommunication services holdings generally outperformed those of the
benchmark while its consumer discretionary holdings lagged. We observed that the
stocks of companies with weaker fundamentals--ones that do not meet our
investment criteria--generally led the fourth-quarter rally. We believe strong
stock selection in the energy, financials and health care sectors enabled the
fund to outperform its Lipper peer group index.
HOW WE INVEST
On October 1, 2004, changes were made to the fund's portfolio management team
with the objective of improving long-term performance. Please see the biography
section on Page 3 for more information on the new management team. Our goal is
to produce consistent, strong, risk-adjusted returns for long-term investors. We
use a bottom-up approach to investing, selecting stocks based on an analysis of
individual companies. Our focus is on small-cap stocks of companies with high
growth potential, as demonstrated by consistent and accelerating earnings
growth. The fund's stock selection process is based on a rigorous three-step
process that includes quantitative, fundamental and valuation analysis to
identify stocks of companies that exhibit consistent, sustainable, above average
earnings growth potential. We believe it is only through in-depth fundamental
research that includes careful financial statement analysis and meetings with
company management teams that these opportunities can be found.
In positioning the fund, we use a "barbell approach"--which involves
exposure to more aggressive, cyclically sensitive stocks and high-quality, less
aggressive stocks. This positioning is designed to potentially benefit investors
in the event of a market rally while providing some downside protection if
markets weaken.
We consider selling a stock if a company experiences decelerating or
disappointing earnings, the stock's price reaches our valuation target or we
find a more attractive investment option.
YOUR FUND
Stock index performance was generally subdued for much of the year amid concerns
about a weak U.S. dollar, rising interest rates, increasing oil prices and
uncertainty surrounding the presidential election. However, indexes rallied
after oil prices peaked in mid-October and the presidential campaign was
concluded in early November. The fund was favorably positioned to take advantage
of this rally.
Since the change of management of the fund, we have made a number of
changes to the portfolio. The fund had 132 holdings and $47.8 million in assets
at the end of the year.
The most significant increase in the fund's sector weightings was in
industrials, which could benefit from an improving economy.
As part of our strategy, we pay close attention to risk, making every
effort to protect our shareholders' investment by sidestepping short-term market
trends. While energy was the best-performing sector of the S&P 500 Index for the
fiscal year, we believed that high oil prices were unsustainable and there was
more downside than upside potential in this sector.
The timely repositioning of the portfolio benefited fund performance, which
had been negative through the first three quarters of the year. Sectors that
contributed the most to performance were health care, industrials and
financials. Health care, which had struggled for most of the year, rallied in
the fourth quarter, while financials and industrials stocks performed relatively
well throughout 2004. Information
================================================================================
PORTFOLIO COMPOSITION
By sector
1. Information Technology 21.4%
2. Health Care 20.5
3. Industrials 13.8
4. Consumer Discretionary 13.7
5. Financials 9.6
6. Energy 4.2
7. Materials 3.5
8. Consumer Staples 0.4
Money Market Funds Plus Other Assets Less Liabilities 12.9
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Investors Financial Services Corp. 2.0%
2. Blount International, Inc. 1.3
3. EnerSys 1.3
4. Brinker International, Inc. 1.2
5. Ceridian Corp. 1.2
6. Rowan Cos., Inc. 1.2
7. Aeroflex Inc. 1.1
8. Sirva Inc. 1.1
9. Radio One, Inc.-Class D 1.1
10. TNS Inc. 1.1
================================================================================
================================================================================
TOP 10 INDUSTRIES*
1. Biotechnology 5.7%
2. Application Software 4.8
3. Pharmaceuticals 4.6
4. Asset Management & Custody Banks 3.7
5. Electronic Equipment Manufacturers 3.4
6. Health Care Services 3.4
7. Health Care Facilities 3.1
8. Health Care Equipment 3.0
9. Specialty Stores 2.7
10. Electrical Components & Equipment 2.6
================================================================================
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding money market fund holdings.
2
AIM V.I. SMALL COMPANY GROWTH FUND
technology and consumer staples were the only sectors that detracted from
performance.
Stocks that performed well for the fund included Investors Financial
Services, which provides asset administration services for the financial
industry through its wholly owned subsidiary, Investors Bank & Trust. Consistent
with our investment strategy, we strive to identify leading growth companies
with sustainable competitive advantages, strong growth prospects and sound
management teams. We believe that Investors Financial Services possesses these
key characteristics.
Also contributing to fund performance was OSI Pharmaceuticals, a developer
of cancer treatments. OSI Pharmaceuticals' stock rose after the company
announced that clinical trials of its new drug Tarceva showed that it improved
the survival rates of patients with certain forms of lung cancer.
Detracting from fund performance were Merix Corp., which makes devices to
link electronic equipment components, and Secure Computing, a provider of
network security products, including firewalls. In May, Merix lowered its sales
estimates for the fourth quarter of its fiscal year, partially because of
reduced orders from one of its major customers. Secure Computing's stock
declined after the company announced its second quarter 2004 earnings would fall
short of estimates because of a drop off in its federal government business. The
fund no longer held either of these stocks at the end of the reporting period.
IN CLOSING
We are committed to our bottom-up stock selection process, and we constantly
review each security's fundamentals and price target to ensure a continued fit.
We also are committed to our strategy of focusing our investments in companies
that show sustainable, above-average earnings growth, while avoiding what we
consider high risk stocks. As such, we believe that that the fund continues to
be an attractive option for investors looking for a small--cap growth fund for
their diversified long-term portfolio. We appreciate your continued
participation in AIM V.I. Small Company Growth Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
[RUSHIN PHOTO]
JAY K. RUSHIN, Chartered Financial Analyst and Portfolio Manager, is portfolio
manager of AIM V.I. Small Company Growth Fund. He began his investment career in
1994 when he joined AIM as a portfolio administrator. In 1996, he left AIM to
work as an associate equity analyst at Prudential Securities. He returned to AIM
as an equity analyst on AIM'S small-cap funds in 1998 and was promoted to senior
analyst in 2000. He was promoted to portfolio manager in 2001. A native of
Gaithersburg, MD, Mr. Rushin holds a B.A. in English from Florida State
University.
Mr. Rushin is assisted by the Aggressive Growth Team, which consists of
analysts who specialize in market sectors.
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in micro and small companies involves risks not associated with
investing in more established companies, such as business risk, significant
stock price fluctuations and illiquidity.
International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
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 holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies. The fund may invest
up to 25% of its assets in the securities of non-U.S. issuers. Securities of
Canadian issuers and American Depositary Receipts are not subject to this 25%
limitation.
At any given time, the fund may be subject to sector risk, which means a
certain sector may underperform other sectors or the market as a whole. The fund
is not limited with respect to the sectors in which it can invest.
Portfolio turnover is greater than that of most funds, which may affect
performance.
3
AIM V.I. SMALL COMPANY GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the Fund, you incur ongoing costs including management fees,
distribution and/or service fees (12b-l) and other fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the fund and to compare these costs with ongoing costs of investing in other
mutual funds. The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period, July 1, 2004 - December
31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
your actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (7/1/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1095.20 $6.85 $1,018.60 $6.60
Series II 1,000.00 1094.50 7.63 1,017.85 7.35
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004 to December 31, 2004 after actual expenses
and will differ from the hypothetical ending account value which is based
on the Fund's expense ratio and a hypothetical annual return of 5% before
expenses. The actual cumulative return at net asset value for the period
July 1, 2004 to December 31, 2004 was 9.52% and 9.45% for Series I and
Series II shares, respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (1.30% and 1.45%
for Series I and Series II shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
================================================================================
4
AIM V.I. SMALL COMPANY GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the early years before reinvested distributions
and compounding create the potential for the original investment to grow to very
large numbers. Had the chart used a linear scale along its vertical axis, you
would not be able to see as clearly the movements in the value of the fund and
the indexes during the fund's early years. We use a logarithmic scale in
financial reports of funds that have more than five years of performance
history.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
Inception (8/22/97) 6.57%
5 Years -6.23
1 Year 13.90
Series II Shares
Inception 6.32%
5 Years -6.44
1 Year 13.73
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the blended returns of the historical performance of the fund's
Series II shares since their inception and the restated historical performance
of the fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the higher Rule 12b-1 fees applicable to the Series
II shares. The inception date of the fund's Series II shares is 4/30/04.
The Series I and Series II shares invest in the same portfolio of
securities and will have substantially similar performance, except to the extent
that expenses borne by each class differ.
The performance data quoted represent past performance and cannot guarantee
================================================================================
RESULTS OF A $10,000 INVESTMENT
8/22/97-12/31/04 Index data from 8/31/97
[MOUNTAIN CHART]
AIM V.I. Small Company Russell 2000 S&P 500 Lipper Small-Cap
Date Growth Fund-Series I Growth Fund Index Growth Fund Index
- ------- ---------------------- ------------ ------- -----------------
8/22/97 $10000
8/97 10090 $10000 $10000 $10000
9/97 10820 10798 10547 10842
12/97 9910 9913 10850 9921
3/98 11249 11091 12363 11042
6/98 10929 10454 12773 10638
9/98 9039 8116 11505 8100
12/98 11532 10035 13953 10017
3/99 11232 9866 14648 9691
6/99 13054 11321 15679 11072
9/99 14895 10764 14702 11272
12/99 22032 14359 16888 16143
3/00 25153 15692 17275 19035
6/00 23740 14535 16816 18015
9/00 23391 13958 16653 17731
12/00 18732 11138 15351 14811
3/01 14627 9445 13532 12016
6/01 17229 11143 14323 14019
9/01 12159 8014 12222 10510
12/01 15258 10111 13528 12891
3/02 14086 9912 13565 12704
6/02 12272 8357 11749 10991
9/02 9992 6558 9720 8847
12/02 10509 7051 10539 9329
3/03 10095 6778 10207 8981
6/03 11846 8414 11778 11078
9/03 12811 9295 12089 12045
12/03 14027 10474 13560 13507
3/04 14597 11058 13790 13988
6/04 14586 11069 14027 13969
9/04 13706 10403 13765 13028
12/04 $15976 $11972 $15035 $14964
Source: Lipper, Inc.
================================================================================
comparable future results; current performance may be lower or higher. Please
contact the variable product issuer or your financial advisor for the most
recent month-end performance. Performance figures reflect fund expenses,
reinvested distributions and changes in net asset value. Investment return and
principal value will fluctuate so that you may have a gain or loss when you sell
shares.
AIM V.I. Small Company Growth Fund, a series portfolio of AIM Variable
Insurance Funds, is currently offered through insurance companies issuing
variable products. You cannot purchase shares of the fund directly. Performance
figures given represent the fund and are not intended to reflect actual variable
product values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return.*
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --registered trademark-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
The unmanaged Lipper Small-Cap Growth Fund Index represents an average of
the performance of the 30 largest small-capitalization growth funds tracked by
Lipper, Inc., an independent mutual fund performance monitor.
The unmanaged Russell 2000 --registered trademark-- Growth Index is a
subset of the unmanaged Russell 2000 --registered trademark-- Index, which
represents the performance of the stocks of small-capitalization companies; the
Growth subset measures the performance of Russell 2000 companies with higher
price/book ratios and higher forecasted growth values.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
value for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
---------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-87.03%
APPAREL RETAIL-1.34%
Aeropostale, Inc./(a)/ 7,600 $ 223,668
---------------------------------------------------------------
Gymboree Corp. (The)/(a)/ 12,500 160,250
---------------------------------------------------------------
Hot Topic, Inc./(a)/ 1,000 17,190
---------------------------------------------------------------
Pacific Sunwear of California, Inc./(a)/ 10,700 238,182
---------------------------------------------------------------
639,290
---------------------------------------------------------------
APPLICATION SOFTWARE-4.81%
Altiris, Inc./(a)(b)/ 8,700 308,241
---------------------------------------------------------------
Catapult Communications Corp./(a)/ 7,800 188,448
---------------------------------------------------------------
Henry (Jack) & Associates, Inc. 22,600 449,966
---------------------------------------------------------------
Hyperion Solutions Corp./(a)/ 4,400 205,128
---------------------------------------------------------------
Intervoice, Inc./(a)/ 15,300 204,255
---------------------------------------------------------------
Open Solutions Inc./(a)/ 7,600 197,296
---------------------------------------------------------------
Sonic Solutions/(a)/ 18,800 421,872
---------------------------------------------------------------
Synopsys, Inc./(a)/ 16,600 325,692
---------------------------------------------------------------
2,300,898
---------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-3.70%
Affiliated Managers Group, Inc./(a)/ 5,675 384,425
---------------------------------------------------------------
Investors Financial Services Corp./(b)/ 18,800 939,624
---------------------------------------------------------------
National Financial Partners Corp. 11,500 446,200
---------------------------------------------------------------
1,770,249
---------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.42%
Drew Industries Inc./(a)/ 5,600 202,552
---------------------------------------------------------------
BIOTECHNOLOGY-5.70%
Amylin Pharmaceuticals, Inc./(a)/ 15,000 350,400
---------------------------------------------------------------
Corgentech Inc./(a)/ 15,000 124,200
---------------------------------------------------------------
CV Therapeutics, Inc./(a)/ 8,500 195,500
---------------------------------------------------------------
Digene Corp./(a)/ 14,500 379,175
---------------------------------------------------------------
Eyetech Pharmaceuticals Inc./(a)/ 9,000 409,500
---------------------------------------------------------------
Incyte Corp./(a)/ 14,700 146,853
---------------------------------------------------------------
Neurocrine Biosciences, Inc./(a)/ 4,200 207,060
---------------------------------------------------------------
OSI Pharmaceuticals, Inc./(a)(b)/ 4,600 344,310
---------------------------------------------------------------
QLT Inc. (Canada)/(a)/ 23,700 381,096
---------------------------------------------------------------
Rigel Pharmaceuticals, Inc./(a)/ 7,600 185,592
---------------------------------------------------------------
2,723,686
---------------------------------------------------------------
BROADCASTING & CABLE TV-1.13%
Radio One, Inc.-Class D/(a)/ 33,500 540,020
---------------------------------------------------------------
CASINOS & GAMING-1.01%
Multimedia Games, Inc./(a)(b)/ 18,900 297,864
---------------------------------------------------------------
Scientific Games Corp.-Class A/(a)/ 7,800 185,952
---------------------------------------------------------------
483,816
---------------------------------------------------------------
MARKET
SHARES VALUE
---------------------------------------------------------
CATALOG RETAIL-0.63%
Insight Enterprises, Inc./(a)/ 14,700 $ 301,644
---------------------------------------------------------
COMMUNICATIONS EQUIPMENT-1.14%
ADTRAN, Inc. 18,000 344,520
---------------------------------------------------------
Sierra Wireless (Canada)/(a)/ 11,400 201,552
---------------------------------------------------------
546,072
---------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-1.42%
Applied Films Corp./(a)/ 15,000 323,400
---------------------------------------------------------
Avid Technology, Inc./(a)/ 3,100 191,425
---------------------------------------------------------
Electronics for Imaging, Inc./(a)/ 9,400 163,654
---------------------------------------------------------
678,479
---------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.71%
Perini Corp./(a)/ 20,300 338,807
---------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.29%
Joy Global Inc./(b)/ 5,700 247,551
---------------------------------------------------------
Oshkosh Truck Corp. 5,600 382,928
---------------------------------------------------------
Wabash National Corp./(a)/ 17,200 463,196
---------------------------------------------------------
1,093,675
---------------------------------------------------------
CONSUMER FINANCE-1.27%
ACE Cash Express, Inc./(a)/ 9,600 284,736
---------------------------------------------------------
Advanta Corp.-Class B 13,200 320,364
---------------------------------------------------------
605,100
---------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-1.22%
Ceridian Corp./(a)/ 32,000 584,960
---------------------------------------------------------
DISTRIBUTORS-0.42%
Source Interlink Cos., Inc./(a)/ 15,200 201,856
---------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-2.42%
G & K Services, Inc.-Class A 9,500 412,490
---------------------------------------------------------
Jackson Hewitt Tax Service Inc. 11,600 292,900
---------------------------------------------------------
Navigant Consulting, Inc./(a)/ 9,400 250,040
---------------------------------------------------------
Standard Parking Corp./(a)/ 13,100 200,430
---------------------------------------------------------
1,155,860
---------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-2.57%
EnerSys/(a)/ 40,500 617,625
---------------------------------------------------------
LSI Industries Inc. 22,200 254,190
---------------------------------------------------------
Ultralife Batteries, Inc./(a)/ 18,400 357,880
---------------------------------------------------------
1,229,695
---------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-3.42%
Aeroflex Inc./(a)/ 45,320 549,278
---------------------------------------------------------
AIM V.I. SMALL COMPANY GROWTH FUND
MARKET
SHARES VALUE
---------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-
(Continued)
Lipman Electronic Engineering Ltd. (Israel) 11,900 $ 332,010
---------------------------------------------------------------------
Measurement Specialties, Inc./(a)/ 9,900 252,054
---------------------------------------------------------------------
Photon Dynamics, Inc./(a)/ 20,700 502,596
---------------------------------------------------------------------
1,635,938
---------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES-0.53%
Staktek Holdings Inc./(a)/ 54,800 254,272
---------------------------------------------------------------------
EMPLOYMENT SERVICES-2.03%
Heidrick & Struggles International, Inc./(a)/ 7,600 260,452
---------------------------------------------------------------------
Labor Ready, Inc./(a)/ 26,300 444,996
---------------------------------------------------------------------
Resources Connection, Inc./(a)(b)/ 4,900 266,119
---------------------------------------------------------------------
971,567
---------------------------------------------------------------------
ENVIRONMENTAL SERVICES-0.90%
Stericycle, Inc./(a)/ 9,400 431,930
---------------------------------------------------------------------
HEALTH CARE EQUIPMENT-3.05%
Adeza Biomedical Corp./(a)/ 13,100 229,905
---------------------------------------------------------------------
Cytyc Corp./(a)/ 10,600 292,242
---------------------------------------------------------------------
IntraLase Corp./(a)/ 12,600 295,848
---------------------------------------------------------------------
Kyphon Inc./(a)/ 7,500 193,200
---------------------------------------------------------------------
PerkinElmer, Inc. 10,800 242,892
---------------------------------------------------------------------
Wright Medical Group, Inc./(a)/ 7,100 202,350
---------------------------------------------------------------------
1,456,437
---------------------------------------------------------------------
HEALTH CARE FACILITIES-3.08%
Community Health Systems Inc./(a)/ 16,900 471,172
---------------------------------------------------------------------
Kindred Healthcare, Inc./(a)/ 14,500 434,275
---------------------------------------------------------------------
Triad Hospitals, Inc./(a)/ 10,200 379,542
---------------------------------------------------------------------
United Surgical Partners International, Inc./(a)/ 4,500 187,650
---------------------------------------------------------------------
1,472,639
---------------------------------------------------------------------
HEALTH CARE SERVICES-3.41%
Accredo Health, Inc./(a)/ 13,200 365,904
---------------------------------------------------------------------
Advisory Board Co. (The)/(a)/ 4,900 180,712
---------------------------------------------------------------------
DaVita, Inc./(a)/ 9,900 391,347
---------------------------------------------------------------------
Gentiva Health Services, Inc./(a)/ 13,300 222,376
---------------------------------------------------------------------
HealthExtras, Inc./(a)/ 28,900 471,070
---------------------------------------------------------------------
1,631,409
---------------------------------------------------------------------
HEALTH CARE SUPPLIES-0.65%
Advanced Medical Optics, Inc./(a)/ 7,600 312,664
---------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-0.63%
La Quinta Corp./(a)/ 33,300 302,697
---------------------------------------------------------------------
HOUSEHOLD APPLIANCES-1.30%
Blount International, Inc./(a)/ 35,800 623,636
---------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-1.00%
Jarden Corp./(a)/ 11,000 477,840
---------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------
INDUSTRIAL GASES-0.84%
Airgas, Inc. 15,200 $ 402,952
-----------------------------------------------------------
INDUSTRIAL MACHINERY-0.94%
Wolverine Tube, Inc./(a)/ 1,000 12,910
-----------------------------------------------------------
Columbus McKinnon Corp./(a)/ 23,300 202,011
-----------------------------------------------------------
Nordson Corp. 5,900 236,413
-----------------------------------------------------------
451,334
-----------------------------------------------------------
INTERNET SOFTWARE & SERVICES-2.10%
Akamai Technologies, Inc./(a)/ 22,500 293,175
-----------------------------------------------------------
CyberSource Corp./(a)/ 24,700 176,605
-----------------------------------------------------------
Digital Insight Corp./(a)/ 11,600 213,440
-----------------------------------------------------------
Digitas Inc./(a)/ 33,800 322,790
-----------------------------------------------------------
1,006,010
-----------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-0.70%
Knight Trading Group, Inc.-Class A/(a)/ 30,600 335,070
-----------------------------------------------------------
IT CONSULTING & OTHER SERVICES-1.70%
MPS Group, Inc./(a)/ 18,800 230,488
-----------------------------------------------------------
Tier Technologies, Inc.-Class B/(a)/ 4,800 44,400
-----------------------------------------------------------
TNS Inc./(a)/ 24,500 535,325
-----------------------------------------------------------
810,213
-----------------------------------------------------------
LEISURE FACILITIES-0.93%
Speedway Motorsports, Inc. 11,300 442,734
-----------------------------------------------------------
OIL & GAS DRILLING-1.51%
Pride International, Inc./(a)/ 6,900 141,726
-----------------------------------------------------------
Rowan Cos., Inc./(a)/ 22,400 580,160
-----------------------------------------------------------
721,886
-----------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.99%
Cooper Cameron Corp./(a)/ 9,500 511,195
-----------------------------------------------------------
Lone Star Technologies, Inc./(a)/ 13,100 438,326
-----------------------------------------------------------
949,521
-----------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-0.71%
Spinnaker Exploration Co./(a)/ 9,700 340,179
-----------------------------------------------------------
PAPER PRODUCTS-1.72%
Sappi Ltd.-ADR (South Africa) 22,300 323,350
-----------------------------------------------------------
Bowater Inc. 11,300 496,861
-----------------------------------------------------------
820,211
-----------------------------------------------------------
PERSONAL PRODUCTS-0.42%
USANA Health Sciences, Inc./(a)/ 5,800 198,360
-----------------------------------------------------------
PHARMACEUTICALS-4.64%
AtheroGenics, Inc./(a)/ 5,300 124,868
-----------------------------------------------------------
Bone Care International, Inc./(a)/ 10,500 292,425
-----------------------------------------------------------
Endo Pharmaceuticals Holdings Inc./(a)/ 14,200 298,484
-----------------------------------------------------------
Eon Labs, Inc./(a)(b)/ 13,900 375,300
-----------------------------------------------------------
AIM V.I. SMALL COMPANY GROWTH FUND
MARKET
SHARES VALUE
--------------------------------------------------------------------------------
PHARMACEUTICALS-(Continued)
Impax Laboratories, Inc./(a)(b)/ 14,700 $ 233,436
--------------------------------------------------------------------------------
MGI Pharma, Inc./(a)/ 14,700 411,747
--------------------------------------------------------------------------------
Salix Pharmaceuticals, Ltd./(a)/ 13,400 235,706
--------------------------------------------------------------------------------
Valeant Pharmaceuticals International 9,300 245,055
--------------------------------------------------------------------------------
2,217,021
--------------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-0.81%
United National Group, Ltd.-Class A (Cayman Islands)/(a)/ 20,700 385,434
--------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT-0.66%
CB Richard Ellis Group, Inc.-Class A/(a)/ 9,400 315,370
--------------------------------------------------------------------------------
REINSURANCE-0.50%
Max Re Capital Ltd. (Bermuda) 11,300 241,029
--------------------------------------------------------------------------------
RESTAURANTS-2.17%
Brinker International, Inc./(a)/ 16,900 592,683
--------------------------------------------------------------------------------
Ruby Tuesday, Inc. 17,000 443,360
--------------------------------------------------------------------------------
1,036,043
--------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.49%
August Technology Corp./(a)/ 36,900 388,557
--------------------------------------------------------------------------------
Cascade Microtech, Inc./(a)/ 19,000 254,980
--------------------------------------------------------------------------------
MKS Instruments, Inc./(a)/ 22,600 419,230
--------------------------------------------------------------------------------
Rudolph Technologies, Inc./(a)/ 7,500 128,775
--------------------------------------------------------------------------------
1,191,542
--------------------------------------------------------------------------------
SEMICONDUCTORS-2.30%
AMIS Holdings, Inc./(a)/ 18,900 312,228
--------------------------------------------------------------------------------
Integrated Silicon Solution, Inc./(a)/ 37,200 305,040
--------------------------------------------------------------------------------
Intersil Corp.-Class A 11,400 190,836
--------------------------------------------------------------------------------
Silicon Laboratories Inc./(a)/ 5,300 187,143
--------------------------------------------------------------------------------
Zoran Corp.(a) 9,100 105,378
--------------------------------------------------------------------------------
1,100,625
--------------------------------------------------------------------------------
SPECIALIZED FINANCE-1.94%
eSPEED, Inc.-Class A/(a)/ 26,800 331,516
--------------------------------------------------------------------------------
Marlin Business Services Inc./(a)/ 13,200 250,800
--------------------------------------------------------------------------------
Primus Guaranty, Ltd. (Bermuda)/(a)/ 21,100 345,829
--------------------------------------------------------------------------------
928,145
--------------------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.92%
Nalco Holding Co./(a)/ 22,500 $ 439,200
-----------------------------------------------------------------------------
SPECIALTY STORES-2.70%
Bombay Co., Inc. (The)/(a)/ 18,000 99,540
-----------------------------------------------------------------------------
Gander Mountain Co./(a)(c)/ 15,000 192,450
-----------------------------------------------------------------------------
Linens 'n Things, Inc./(a)/ 18,800 466,240
-----------------------------------------------------------------------------
OfficeMax Inc. 16,900 530,322
-----------------------------------------------------------------------------
1,288,552
-----------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.26%
PC Connection, Inc./(a)/ 12,900 122,808
-----------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-0.74%
Watsco, Inc. 10,100 355,722
-----------------------------------------------------------------------------
TRUCKING-1.14%
Sirva Inc./(a)/ 28,300 543,926
-----------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $36,559,490) 41,611,575
-----------------------------------------------------------------------------
MONEY MARKET FUNDS-13.27%
Premier Portfolio (Cost $6,346,809)/(d)(e)/ 6,346,809 6,346,809
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-100.30%
(excluding investments purchased with cash
collateral from securities loaned)
(Cost $42,906,299) 47,958,384
-----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.34%
Premier Portfolio/(d)(e)(f)/ 163,764 163,764
-----------------------------------------------------------------------------
Total Money Market Funds
(purchased with cash collateral from
securities loaned)
(Cost $163,764) 163,764
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-100.64% (Cost $43,070,063) 48,122,148
-----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.64%) (306,204)
-----------------------------------------------------------------------------
NET ASSETS-100.00% $ 47,815,944
-----------------------------------------------------------------------------
Investment Abbreviations:
ADR - AmericanDepositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) A portion of this security is subject to call options written. See Note 1G
and Note 8.
(c) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
(f) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions upon
the borrower's return of the securities loaned. See Note 7.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. SMALL COMPANY GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $36,559,490)* $41,611,575
- ----------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $6,510,573) 6,510,573
- ----------------------------------------------------------------------------------
Total investments (cost $43,070,063) 48,122,148
- ----------------------------------------------------------------------------------
Cash 25,136
- ----------------------------------------------------------------------------------
Receivables for:
Investments sold 230,307
- ----------------------------------------------------------------------------------
Fund shares sold 848
- ----------------------------------------------------------------------------------
Dividends 17,202
- ----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 5,686
- ----------------------------------------------------------------------------------
Total assets 48,401,327
- ----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 117,413
- ----------------------------------------------------------------------------------
Fund shares reacquired 113,962
- ----------------------------------------------------------------------------------
Options written, at market value (premiums received $51,840) 70,203
- ----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 6,277
- ----------------------------------------------------------------------------------
Collateral upon return of securities loaned 163,764
- ----------------------------------------------------------------------------------
Accrued administrative services fees 66,210
- ----------------------------------------------------------------------------------
Accrued distribution fees-Series II 4
- ----------------------------------------------------------------------------------
Accrued transfer agent fees 1,325
- ----------------------------------------------------------------------------------
Accrued operating expenses 46,225
- ----------------------------------------------------------------------------------
Total liabilities 585,383
- ----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $47,815,944
- ----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $48,143,649
- ----------------------------------------------------------------------------------
Undistributed net investment income (loss) (66,907)
- ----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
option contracts (5,294,520)
- ----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and option contracts 5,033,722
- ----------------------------------------------------------------------------------
$47,815,944
- ----------------------------------------------------------------------------------
NET ASSETS:
Series I $47,804,472
- ----------------------------------------------------------------------------------
Series II $ 11,472
- ----------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 3,101,915
- ----------------------------------------------------------------------------------
Series II 745
- ----------------------------------------------------------------------------------
Series I:
Net asset value per share $ 15.41
- ----------------------------------------------------------------------------------
Series II:
Net asset value per share $ 15.40
- ----------------------------------------------------------------------------------
* At December 31, 2004, securities with an aggregate market value of $109,517
were on loan to brokers.
Statement of Operations
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $151) $ 83,272
- -------------------------------------------------------------------------------
Dividends from affiliated money market funds (including securities
lending income of $8,073**) 61,012
- -------------------------------------------------------------------------------
Total investment income 144,284
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 338,067
- -------------------------------------------------------------------------------
Administrative services fees 146,880
- -------------------------------------------------------------------------------
Custodian fees 27,499
- -------------------------------------------------------------------------------
Distribution fees-Series II 17
- -------------------------------------------------------------------------------
Transfer agent fees 7,112
- -------------------------------------------------------------------------------
Trustees' fees and retirement benefits 11,877
- -------------------------------------------------------------------------------
Reports to shareholders 36,404
- -------------------------------------------------------------------------------
Professional fees 39,024
- -------------------------------------------------------------------------------
Other 4,270
- -------------------------------------------------------------------------------
Total expenses 611,150
- -------------------------------------------------------------------------------
Less:Fees waived (34,268)
- -------------------------------------------------------------------------------
Net expenses 576,882
- -------------------------------------------------------------------------------
Net investment income (loss) (432,598)
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 8,758,986
- -------------------------------------------------------------------------------
Option contracts written 22,188
- -------------------------------------------------------------------------------
8,781,174
- -------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,297,791)
- -------------------------------------------------------------------------------
Option contracts written (18,363)
- -------------------------------------------------------------------------------
(2,316,154)
- -------------------------------------------------------------------------------
Net gain from investment securities and option contracts 6,465,020
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 6,032,422
- -------------------------------------------------------------------------------
** Dividends from affiliated money market funds are net of income rebate paid
to securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. SMALL COMPANY GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004 2003
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (432,598) $ (302,034)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and option contracts 8,781,174 4,832,717
- ------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and option contracts (2,316,154) 7,332,784
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,032,422 11,863,467
- ------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (7,824,302) 4,743,889
- ------------------------------------------------------------------------------------------------------------------------------
Series II 10,000 --
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (7,814,302) 4,743,889
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,781,880) 16,607,356
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 49,597,824 32,990,468
- ------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(66,907) and $(1,955),
respectively) $47,815,944 $49,597,824
- ------------------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Small Company Growth Fund, formerly INVESCO VIF-Small Company Growth
Fund, (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twenty-eight separate
portfolios. The Fund currently offers two classes of shares, Series I and
Series II, both of which are offered to insurance company separate accounts
funding variable annuity contracts and variable life insurance policies
("variable products"). Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
On April 30, 2004, the Fund was restructured from a separate series of INVESCO
Variable Investment Funds, Inc. to a new series portfolio of the Trust.
The Fund's investment objective is to seek long-term capital growth. Each
company listed in the Schedule of Investments is organized in the United States
of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy. A security listed or traded on an
exchange (except convertible bonds) is valued at its last sales price as of
the close of the customary trading session on the exchange where the
security is principally traded, or lacking any sales on a particular day,
the security is valued at the closing bid price on that day. Each security
traded in the over-the-counter market (but not securities reported on the
NASDAQ National Market System) is valued on the basis of prices furnished by
independent pricing services or market makers. Each security reported on the
NASDAQ National Market System is valued at the NASDAQ Official Closing Price
("NOCP") as of the close of the customary trading session on the valuation
date or absent a NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
AIM V.I. SMALL COMPANY GROWTH FUND
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option is
the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or a loss if
the closing purchase transaction exceeds the premium received when the
option was written) without regard to
AIM V.I. SMALL COMPANY GROWTH FUND
any unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised,
the Fund realizes a gain or a loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally
received. A risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised.
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
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.75% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $214,055. Prior to May 1, 2004,
the Trust had an investment advisory agreement with INVESCO Funds Group, Inc.
("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund paid
advisory fees under similar terms to IFG of $124,012. Effective January 1, 2005
through June 30, 2006, AIM has contractually agreed to waive advisory fees to
the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.745% of
the first $250 million, plus 0.73% of the next $250 million, plus 0.715% of the
next $500 million, plus 0.70% of the next $1.5 billion, plus 0.685% of the next
$2.5 billion, plus 0.67% of the next $2.5 billion, plus 0.655% of the next $2.5
billion, plus 0.64% of the Fund's average daily net assets in excess of $10
billion.
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of each Series to 1.30% of average daily net
assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit total
annual operating expenses (excluding certain items discussed below) of each
Series to 1.25% of average daily net assets. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits
are in the form of credits that the Fund receives from banks where the Fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the Fund. Further,
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of
25% of the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the Fund). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended December 31,
2004, AIM waived fees of $34,261.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $99,756, of which AIM retained $33,470 for services provided
by AIM. Prior to May 1, 2004, the Fund had an administrative services agreement
with IFG. For the period January 1, 2004 through April 30, 2004, under similar
terms, IFG was paid $47,124, of which IFG retained $5,786 for services provided
by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $7,112.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit total annual fund operating expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets, through April 30, 2006. Pursuant to the
Plan, for the period April 30, 2004 (date sale commenced) through December 31,
2004, the Series II shares paid $10 after AIM Distributors waived Plan fees of
$7.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to
be affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
Premier Portfolio $3,015,849 $36,958,606 $(33,627,646) $ -- $6,346,809 $52,939 $ --
- ---------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
Premier Portfolio $ 532,875 $19,183,018 $(19,552,129) $ -- $ 163,764 $ 8,073 $ --
- ---------------------------------------------------------------------------------------------------------
Total $3,548,724 $56,141,624 $(53,179,775) $ -- $6,510,573 $61,012 $ --
- ---------------------------------------------------------------------------------------------------------
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures each transaction is effected at the current market
price. Pursuant to these procedures, during the year ended December 31, 2004,
the Fund engaged in purchases and sales of securities of $1,530,394 and
$1,074,414, respectively.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $1,885
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2004, securities with an aggregate value of $109,517 were on
loan to brokers. The loans were secured by cash collateral of $163,764 received
by the Fund and subsequently invested in an affiliated money market fund. On
January 3, 2005, the Fund returned cash collateral of $48,528 for previously
loaned securities which were returned to the Fund by the borrower on December
31, 2004. For the year ended December 31, 2004, the Fund received dividends on
cash collateral net of income rebate paid to counterparties of $8,073 for
securities lending transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
- --------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------- --------
Beginning of year -- $ --
---------------------------------------
Written 766 83,873
---------------------------------------
Closed (26) (15,132)
---------------------------------------
Exercised (33) (5,360)
---------------------------------------
Expired (186) (11,541)
---------------------------------------
End of year 521 $ 51,840
---------------------------------------
OPEN OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS DECEMBER 31, 2004 APPRECIATION
MONTH PRICE CONTRACTS RECEIVED MARKET VALUE (DEPRECIATION)
- - -------- ------ --------- -------- ----------------- --------------
CALLS
Altiris, Inc. Feb-05 $35.0 75 $10,449 $18,937 $ (8,488)
- ------------------------------------------------------------------------------------------------------
Eon Labs, Inc. Jan-05 30.0 47 3,345 705 2,640
- ------------------------------------------------------------------------------------------------------
Impax Laboratories, Inc. Feb-05 17.5 73 3,537 3,833 (296)
- ------------------------------------------------------------------------------------------------------
Investors Financial Services Corp. Feb-05 50.0 75 7,650 16,500 (8,850)
- ------------------------------------------------------------------------------------------------------
Joy Global Inc. Feb-05 45.0 43 6,048 5,913 135
- ------------------------------------------------------------------------------------------------------
Multimedia Games, Inc. Feb-05 17.5 151 6,587 7,550 (963)
- ------------------------------------------------------------------------------------------------------
OSI Pharmaceuticals, Inc. Feb-05 80.0 23 5,975 7,245 (1,270)
- ------------------------------------------------------------------------------------------------------
Resources Connection, Inc. Feb-05 55.0 34 8,249 9,520 (1,271)
- ------------------------------------------------------------------------------------------------------
Total outstanding options written 521 $51,840 $70,203 $(18,363)
- ------------------------------------------------------------------------------------------------------
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
-------------------------------------------------
Unrealized appreciation--investments $ 4,840,327
-------------------------------------------------
Temporary book/tax differences (3,842)
-------------------------------------------------
Capital loss carryforward (5,164,190)
-------------------------------------------------
Share of beneficial interest 48,143,649
-------------------------------------------------
Total net assets $47,815,944
-------------------------------------------------
AIM V.I. SMALL COMPANY GROWTH FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and realization of unrealized gains on passive foreign investment
companies. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation (depreciation) on option contracts written of
$(18,363).
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $8,325,157 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
-------------------------------
December 31, 2010 $5,164,190
-------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $82,441,761 and $94,623,379, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $5,239,673
------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (380,983)
------------------------------------------------------------------------
Net unrealized appreciation of investment securities $4,858,690
------------------------------------------------------------------------
Cost of investments for tax purposes is $43,263,458.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating loss,
passive foreign investment companies sale and non-deductible reorganization
expenses, on December 31, 2004, undistributed net investment income (loss) was
increased by $367,646, undistributed net realized gain (loss) decreased by
$33,927 and shares of beneficial interest decreased by $333,719. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2004 2003
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
Sold:
Series I 797,111 $ 10,996,485 3,309,670 $ 37,027,890
---------------------------------------------------------------------
Series II/(b)/ 745 10,000 -- --
---------------------------------------------------------------------
Reacquired:
Series I/(b)/ (1,362,554) (18,820,787) (2,897,138) (32,284,001)
---------------------------------------------------------------------
(564,698) $ (7,814,302) 412,532 $ 4,743,889
---------------------------------------------------------------------
/(a)/There are five entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 86% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities, which
are considered to be related to the Fund, for providing services to the
Fund, AIM and/or AIM affiliates including but not limited to services such
as, securities brokerage, third party record keeping and account servicing
and administrative services. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by these shareholders are
also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.52 $ 10.14 $ 14.72 $ 18.07
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14) (0.08) (0.00)/(a)/ (0.00)/(a)/
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.03 3.46 (4.58) (3.35)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.89 3.38 (4.58) (3.35)
- ------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.41 $ 13.52 $ 10.14 $ 14.72
- ------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 13.98% 33.33% (31.11)% (18.54)%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $47,804 $49,598 $32,990 $39,211
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.28%/(c)/ 1.25% 1.25% 1.25%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.36%/(c)/ 1.30% 1.31% 1.29%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.96)%/(c)/ (0.75)% (0.87)% (0.48)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 198% 133% 95% 88%
- ------------------------------------------------------------------------------------------------------------------------
--------
--------
2000
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.01
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(a)/
- --------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (3.35)
- --------------------------------------------------------------------------------
Total from investment operations (3.35)
- --------------------------------------------------------------------------------
Less distributions from net realized gains (0.59)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 18.07
- --------------------------------------------------------------------------------
Total return/(b)/ (14.98)%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,765
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.37%
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.43%
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.64)%
- --------------------------------------------------------------------------------
Portfolio turnover rate 155%
- --------------------------------------------------------------------------------
/(a)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.09), $(0.06) and
$(0.08) for the years ended December 31, 2002, 2001 and 2000, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
/(c)/Ratios are based on average daily net assets of $45,068,848.
SERIES II
--------------------
APRIL 30, 2004 (DATE
SALE COMMENCED) TO
DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.42
- ------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)
- ------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.08
- ------------------------------------------------------------------------------------------
Total from investment operations 1.98
- ------------------------------------------------------------------------------------------
Net asset value, end of period $15.40
- ------------------------------------------------------------------------------------------
Total return/(a)/ 14.75%
- ------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11
- ------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (including interest expense):
With fee waivers and/or expense reimbursements 1.45%/(b)/
- ------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.61%/(b)/
- ------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.13)%/(b)/
- ------------------------------------------------------------------------------------------
Portfolio turnover rate/(c)/ 198%
- ------------------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(b)/Ratios are annualized and based on average daily net assets of $10,069.
/(c)/Not annualized for periods less than one year.
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM
AIM V.I. SMALL COMPANY GROWTH FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Funds: market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders. These regulators include the SEC, the NASD, the Department of
Banking for the State of Connecticut, the Attorney General of the State of West
Virginia, the West Virginia Securities Commission and the Bureau of Securities
of the State of New Jersey. AIM and certain of these other parties also have
received more limited inquiries from the SEC, the NASD, the DOL, the Internal
Revenue Service, the United States Attorney's Office for the Southern District
of New York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal
Inspection Service and the Commodity Futures Trading Commission, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect
to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the Federal and state securities laws; (ii) violation
of various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv)
breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; injunctive
relief; disgorgement of management fees; imposition of a constructive trust;
removal of certain directors and/or employees; various corrective measures
under ERISA; rescission of certain Funds' advisory agreements; interest; and
attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. SMALL COMPANY GROWTH FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM V.I. Small Company Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Small Company Growth
Fund, formerly known as INVESCO VIF-Small Company Growth Fund, (one of the
funds constituting AIM Variable Insurance Funds, formerly known as INVESCO
Variable Investment Funds, Inc., hereafter referred to as the "Fund") at
December 31, 2004, 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 periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. SMALL COMPANY GROWTH FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Small Company Growth Fund (now
known as AIM V.I. Small Company Growth Fund), ("Fund"), an investment portfolio
of INVESCO Variable Investment Funds, Inc. ("Company"), (now known as AIM
Variable Insurance Funds), a Delaware statutory trust, was held on April 2,
2004. The meeting was held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
VOTES WITHHELD/
MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------
(2) Approval of a new Investment
Advisory Agreement with A I M
Advisors, Inc...................... 2,872,827 8,680 19,492
(3) Approval of a new Sub-Advisory
Agreement between A I M Advisors,
Inc. and INVESCO Institutional
(N.A.), Inc........................ 2,866,110 16,076 18,813
(4)* Approval of an Agreement and Plan
of Reorganization to redomesticate
each series portfolio of Company
as a new series portfolio of AIM
Variable Insurance Funds, an
existing Delaware statutory trust.. 88,123,016 3,299,467 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Insurance Funds, Inc.
AIM V.I. SMALL COMPANY GROWTH FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
DIRECTORSHIP(S)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 HELD BY
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 Trustee 2003 Director, President and Chief Executive None
and Executive Vice President Officer, A I M Management Group Inc.
(financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited
Trustee and Chair Associates (technology consulting (insurance
company) company); and
Captaris, Inc.
(unified messaging
provider)
- ------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- ------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered
Formerly: Partner, law firm of Baker & investment
McKenzie company)
- ------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, (Chairman)
including the Boss Group Ltd. (private (registered
investment and management) and Magellan investment
Insurance Company company); Annuity
and Life Re
Formerly: Director, President and Chief (Holdings), Ltd.
Executive Officer, Volvo Group North (insurance
America, Inc.; Senior Vice President, company)
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and
Trustee Century Group, Inc. (government affairs Discovery Global
company) and Texana Timber LP Education Fund
(sustainable forestry company) (non-profit)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. SMALL COMPANY GROWTH FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group,
Trustee (California) Inc.
Formerly: Associate Justice of the
California Court of Appeals
- ------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- ------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Other Officers
- ------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio
Manager, INVESCO Institutional (N.A.),
Inc.
- ------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
..
AIM V.I. SMALL COMPANY GROWTH FUND
AIM V.I. TECHNOLOGY FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-TECHNOLOGY FUND
WAS RENAMED AIM V.I. TECHNOLOGY FUND.
AIM V.I. TECHNOLOGY FUND seeks to provide capital growth.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. TECHNOLOGY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For the fiscal year ended December 31, 2004, AIM V.I. Technology Fund
underperformed the S&P 500 Index, which represents the performance of the U.S.
stock market. For the fund and for the S&P 500 Index, 2004 was the first year of
positive back-to-back annual returns since 1999. While past performance cannot
guarantee comparable future results, we were pleased to deliver positive returns
to our shareholders.
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 4.63%
Series II Shares 4.21
S&P 500 Index (Broad Market Index) 10.87
Goldman Sachs Technology Composite
Index (Style-specific Index) 2.57
Lipper Science & Technology Fund Index
(Peer Group Index) 4.11
Source: Lipper, Inc.
================================================================================
The fund lagged the S&P 500 Index because of the general weakness in many
technology stocks for most of the year. While the sector rallied in the fourth
quarter, information technology was the second weakest-performing sector of the
S&P 500 Index for all of 2004. While trailing the broad market, the fund
outperformed its style-specific index and, more narrowly, its peer group index
for the year. Solid stock selection, particularly in the computers and
peripherals industry as well as the Internet software and services industry,
helped fund performance.
HOW WE INVEST
In keeping with our investment philosophy and process, we look for attractively
valued, well-managed companies in the information technology sector with the
potential to deliver attractive returns. While we are permitted to invest in
stocks of any market capitalization, we tend to focus on mid- and large-cap
stocks to avoid liquidity problems that can be associated with some small-cap
stocks.
Within our universe of U.S. and international technology stocks, we seek to
identify industries likely to benefit from strong fundamentals over the next 12
to 24 months. Within each of those industries, we look for individual companies
with strong management and market-leading positions. Then we apply our
proprietary valuation analysis--allowing us to compare a stock's current
valuation to its historical valuations as well as the valuation of its
competitors. Finally, we construct the fund's portfolio with the goal of holding
80 to 120 individual stocks. We normally try to invest 50% to 80% of the fund's
assets in strategic, or core, holdings--market-leading companies we wish to hold
for a longer-term investment horizon. We normally invest 20% to 50% of the
fund's assets in tactical, or non-core, holdings--companies that we believe have
compelling near-term appreciation potential.
We may reduce or eliminate exposure to a stock when:
. A more attractive investment opportunity is identified.
. A company's fundamentals change (product failure, reduced pricing power,
margin compression, etc.)
. A company's earnings disappoint.
. Management's strategic direction shifts or unfavorable changes occur.
MARKET CONDITIONS AND YOUR FUND
The economy showed signs of improvement during the fiscal year, as did the U.S.
stock market, particularly in the fourth quarter of 2004. The S&P 500 Index rose
10.87% for the year, and 9.23% in the fourth quarter alone. Information
technology stocks, as a group, lagged the performance of the broad U.S. stock
market for all of 2004, but rallied in the fourth quarter. The information
technology sector was the second weakest-performing sector of the S&P 500 Index,
returning just 2.56% for the year. The Frank Russell Company, which compiles the
Russell market indexes, reported that for 2004, mid-cap stocks outperformed
small- and large-cap stocks, although each enjoyed double-digit returns. Also,
value stocks generally outperformed growth stocks for the year.
The fund benefited from solid stock selection, particularly in the
computers and peripherals industry and the Internet software and services
industry. Stocks in the computers and peripherals industry generally did well as
investors anticipated a possible increase in capital spending by corporations.
Many Internet software and services stocks did well as the build-out of
e-commerce continued.
================================================================================
PORTFOLIO COMPOSITION
By industry
1. Semiconductors 18.7%
2. Communications Equipment 14.2
3. Systems Software 13.3
4. Computer Hardware 7.9
5. Internet Software & Services 7.4
6. Computer Storage & Peripherals 5.8
7. Application Software 5.2
8. Wireless Telecommunication Services 4.9
9. Data Processing & Outsourced Services 3.9
14 Other industries, each less than 3% of total net assets 17.3
Money Market Funds Plus Other Assets Less Liabilities 1.4
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Microsoft Corp. 4.6%
2. Yahoo! Inc. 3.2
3. Dell Inc. 3.1
4. Apple Computer, Inc. 2.7
5. Cisco Systems, Inc. 2.6
6. VeriSign, Inc. 2.6
7. eBay Inc. 2.6
8. EMC Corp. 2.4
9. Intel Corp. 2.3
10. International Business Machines Corp. 2.1
================================================================================
The fund's portfolio is subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding money market fund holdings.
2
AIM V.I. TECHNOLOGY FUND
Apple Computer was a standout performer for the fund. Apple is one of only
a few companies to make money from the music downloading trend. The company's
iPod--registered trademark--digital music player has become the industry
standard, and sales have remained strong. We liked Apple because of its market
dominance and because we believed Apple's computer and accessory sales may
improve given that the iPod has lured customers to the company's Web site and
into its stores. We began to see early indications of this in the company's
fourth-quarter earnings announcement. While Apple remains an important holding
in the fund, we sold some of our holdings and took profits before the close of
the fiscal year.
VeriSign was another top-performing holding during the year. The company is
a leading provider of network and Internet security software, and in June it
acquired Jamba, a German mobile phone content provider and a leading provider of
ring tones--a $4 billion market. We have long been impressed with VeriSign's
management, and we believed the acquisition could boost VeriSign's revenues
going forward. If anything, we underestimated the strength of this new market
and the positive impact it has had on the company's cash flow and earnings. It
provided a solid catalyst for strong performance by the stock. We do have some
longer-term concerns about the longevity of this market, but momentum is strong
at the moment. That said, we reduced our position somewhat and took some
profits. As of the close of the fiscal year, VeriSign remained one of the fund's
largest holdings.
In contrast, the fund's semiconductor and semiconductor equipment stocks,
as a group, were the biggest drag on fund performance. For much of 2004, we
placed less emphasis on semiconductor stocks due to concerns about increased
inventories and slowing earnings. During the third quarter, however, we
increased our holdings in this industry because we believed that the market had
factored lower earnings expectations into the prices of many chip stocks. This
proved beneficial, as the industry had a solid trading move in the fourth
quarter of 2004.
Novell hindered fund performance during the fiscal year. Novell is
attempting to transition its business to the "open" Linux operating system. The
stock has under-performed recently as investors expressed disappointment that
Linux is not being adopted as quickly as hoped. Novell's chairman and chief
executive officer, while citing strong performance of the company's key growth
initiatives, admitted in November that "fiscal year 2005 will be another
rebuilding year for Novell." On that news, we eliminated our position in the
stock and allocated it to more promising opportunities.
IN CLOSING
As 2004 ended, semiconductor demand seemed reasonably strong, and we expected
inventories to be in line with the rate of demand growth sometime during the
first half of 2005. At year-end, corporations generally had large amounts of
cash on hand, available for information technology infrastructure investments,
among other purposes. Spending on such infrastructure investments has been below
historic levels for several years. As always, we thank you for your continuing
investment in AIM V.I. Technology Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
[KEITHLER PHOTO]
WILLIAM R. KEITHLER, Chartered Financial Analyst, senior portfolio manager, is
lead portfolio manager of AIM V.I. Technology Fund (prior to 2004, INVESCO
VIF-Technology Fund). He began his career in the investment industry in 1982 and
joined INVESCO in 1986, where he managed several funds for the company until
1993. He rejoined INVESCO in 1998. Mr. Keithler has a B.A. from Webster College
in St. Louis, and an MA in finance from the University of Wisconsin.
[ESPELIEN PHOTO]
MICHELLE ESPELIEN FENTON, Chartered Financial Analyst, portfolio manager, is a
manager of AIM V.I. Technology Fund (prior to 2004, INVESCO VIF-Technology
Fund). She began her career in the investment industry in 1995. Before joining
INVESCO in 1998, she worked as an equity analyst at another investment firm. She
assumed her current duties in 2003. Ms. Fenton received her B.A. in finance from
Montana State University.
Assisted by the Technology Team
[RIGHT ARROW GRAPHIC]
For further Information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in a single-sector or single-region mutual fund involves greater risk
and potential reward than investing in a more diversified fund.
Investing in small and mid-size companies involves risks not associated
with investing in more established companies, including business risk,
significant stock price fluctuations and illiquidity.
International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
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 holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies. The fund may invest
up to 25% of its assets in the securities of non-U.S. issuers. Securities of
Canadian issuers and American Depositary Receipts are not subject to this 25%
limitation.
Portfolio turnover is greater than that of most funds, which may affect
performance.
3
AIM V.I. TECHNOLOGY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs including management fees,
distribution and/or service fees (12b-l) and other fund expenses. This example
is intended to help you understand your ongoing costs (in dollars) of investing
in the fund and to compare these costs with ongoing costs of investing in other
mutual funds. The example is based on an investment of $1,000 invested at the
beginning of the period and held for the entire period, July 1, 2004 - December
31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (07/01/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1,050.80 $5.98 $1,019.30 $5.89
Series II 1,000.00 1,049.20 7.26 1,018.05 7.15
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual
expenses and will differ from the hypothetical ending account value which
is based on the fund's expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 5.08% and 4.92% for Series I
and II shares, respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (1.16% and 1.41%
for Series I and II shares, respectively) multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year
period).
================================================================================
4
AIM V.I. TECHNOLOGY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the early years before reinvested distributions
and compounding create the potential for the original investment to grow to very
large numbers. Had the chart used a linear scale along its vertical axis, you
would not be able to see as clearly the movements in the value of the fund and
the indexes during the fund's early years. We use a logarithmic scale in
financial reports of funds that have more than five years of performance
history.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
Inception (5/20/97) 3.00%
5 Years -19.63
1 Year 4.63
Series II Shares
Inception 2.72%
5 Years -19.86
1 Year 4.21
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the blended returns of the historical performance of the fund's
Series II shares since their inception and the restated historical performance
of the fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the higher Rule 12b-1 fees applicable to the Series
II shares. The inception date of the fund's Series I shares is 5/20/97. The
inception date of the fund's Series II shares is 4/30/04. The Series I and
Series II shares invest in the same portfolio of securities and will have
substantially similar performance, except to the extent that expenses borne by
each class differ.
================================================================================
RESULTS OF A $10,000 INVESTMENT
5/20/97-12/31/04 Index data from 5/31/97
[MOUNTAIN CHART]
AIM V.I. Technology Lipper Science and S&P 500
Date Fund-Series I Technology Fund Index Index
- ------- ------------------- --------------------- -------
5/20/97 $10000 $ $
5/97 10000 10000 10000
6/97 10000 10093 10445
9/97 12510 12071 11227
12/97 11479 10202 11549
3/98 13059 11712 13159
6/98 13680 11983 13596
9/98 11100 10780 12247
12/98 14429 14990 14852
3/99 17600 16710 15592
6/99 20499 19090 16689
9/99 22421 20407 15649
12/99 37367 32067 17976
3/00 47087 39052 18388
6/00 43214 34928 17899
9/00 44998 34194 17726
12/00 28620 22359 16340
3/01 16807 15541 14404
6/01 19419 17416 15246
9/01 11227 11011 13009
12/01 15505 14595 14399
3/02 14536 13556 14439
6/02 10207 9827 12506
9/02 7161 7379 10346
12/02 8240 8555 11218
3/03 8150 8533 10865
6/03 9824 10479 12536
9/03 10661 11533 12868
12/03 11971 12946 14434
3/04 11911 13085 14678
6/04 11920 13014 14931
9/04 10811 11644 14652
12/04 $12526 $13478 $16004
Source: Lipper, Inc.
================================================================================
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or financial advisor for the most recent
month-end variable product performance. Performance figures reflect fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
AIM V.I. Technology Fund, a series portfolio of AIM Variable Insurance
Funds, is currently offered through insurance companies issuing variable
products. You cannot purchase shares of the fund directly. Performance figures
given represent the fund and are not intended to reflect actual variable product
values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return.*
ABOUT INDEXES USED IN THIS REPORT
The Goldman Sachs Technology Composite Index is a modified
capitalization-weighted index composed of companies involved in the technology
industry. The index is rebalanced semiannually.
The unmanaged Lipper Science and Technology Fund Index represents an
average of the performance of the 30 largest science and technology funds
tracked by Lipper, Inc., an independent mutual fund performance monitor.
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --registered trademark-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
-----------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER
EQUITY INTERESTS-84.93%
APPLICATION SOFTWARE-1.96%
Macromedia, Inc./(a)/ 49,900 $ 1,552,888
-----------------------------------------------------------------------
NAVTEQ Corp./(a)/ 32,200 1,492,792
-----------------------------------------------------------------------
TIBCO Software Inc./(a)/ 67,100 895,114
-----------------------------------------------------------------------
3,940,794
-----------------------------------------------------------------------
BIOTECHNOLOGY-0.92%
Biogen Idec Inc./(a)/ 21,200 1,412,132
-----------------------------------------------------------------------
Genentech, Inc./(a)/ 8,000 435,520
-----------------------------------------------------------------------
1,847,652
-----------------------------------------------------------------------
BROADCASTING & CABLE TV-1.18%
Comcast Corp.-Class A/(a)/ 66,221 2,203,835
-----------------------------------------------------------------------
Liberty Media International, Inc.-Class A/(a)/ 3,547 163,978
-----------------------------------------------------------------------
2,367,813
-----------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-11.20%
Avaya Inc./(a)/ 220,470 3,792,084
-----------------------------------------------------------------------
Cisco Systems, Inc./(a)/ 271,200 5,234,160
-----------------------------------------------------------------------
Comverse Technology, Inc./(a)/ 121,360 2,967,252
-----------------------------------------------------------------------
Corning Inc./(a)/ 100,160 1,178,883
-----------------------------------------------------------------------
F5 Networks, Inc./(a)/ 19,900 969,528
-----------------------------------------------------------------------
Foundry Networks, Inc./(a)/ 38,500 506,660
-----------------------------------------------------------------------
Juniper Networks, Inc./(a)/ 108,471 2,949,326
-----------------------------------------------------------------------
Motorola, Inc. 137,030 2,356,916
-----------------------------------------------------------------------
QUALCOMM Inc. 59,880 2,538,912
-----------------------------------------------------------------------
22,493,721
-----------------------------------------------------------------------
COMPUTER HARDWARE-7.92%
Apple Computer, Inc./(a)/ 85,000 5,474,000
-----------------------------------------------------------------------
Dell Inc./(a)/ 147,700 6,224,078
-----------------------------------------------------------------------
International Business Machines Corp. 41,800 4,120,644
-----------------------------------------------------------------------
Sun Microsystems, Inc./(a)/ 15,100 81,238
-----------------------------------------------------------------------
15,899,960
-----------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-5.78%
Avid Technology, Inc./(a)/ 16,400 1,012,700
-----------------------------------------------------------------------
EMC Corp./(a)/ 316,600 4,707,842
-----------------------------------------------------------------------
Lexmark International, Inc.-Class A/(a)/ 11,700 994,500
-----------------------------------------------------------------------
Network Appliance, Inc./(a)/ 82,600 2,743,972
-----------------------------------------------------------------------
QLogic Corp./(a)/ 19,300 708,889
-----------------------------------------------------------------------
Storage Technology Corp./(a)/ 45,500 1,438,255
-----------------------------------------------------------------------
11,606,158
-----------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.26%
Dycom Industries, Inc./(a)/ 16,900 515,788
-----------------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-3.87%
Automatic Data Processing, Inc. 53,400 $ 2,368,290
--------------------------------------------------------------------------------
DST Systems, Inc./(a)/ 40,400 2,105,648
--------------------------------------------------------------------------------
First Data Corp. 42,700 1,816,458
--------------------------------------------------------------------------------
Paychex, Inc. 43,600 1,485,888
--------------------------------------------------------------------------------
7,776,284
--------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-0.43%
Amphenol Corp.-Class A/(a)/ 23,500 863,390
--------------------------------------------------------------------------------
ELECTRONIC MANUFACTURING
SERVICES-0.45%
Trimble Navigation Ltd./(a)/ 27,200 898,688
--------------------------------------------------------------------------------
HEALTH CARE SERVICES-0.30%
Quest Diagnostics Inc. 6,300 601,965
--------------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-1.66%
SBC Communications Inc. 38,970 1,004,257
--------------------------------------------------------------------------------
Sprint Corp. 54,555 1,355,692
--------------------------------------------------------------------------------
Verizon Communications Inc. 23,950 970,214
--------------------------------------------------------------------------------
3,330,163
--------------------------------------------------------------------------------
INTERNET RETAIL-2.54%
eBay Inc./(a)/ 43,940 5,109,343
--------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-7.41%
CNET Networks, Inc./(a)/ 34,900 391,927
--------------------------------------------------------------------------------
Google Inc.-Class A/(a)/ 2,300 444,130
--------------------------------------------------------------------------------
InfoSpace, Inc./(a)/ 20,500 974,775
--------------------------------------------------------------------------------
Openwave Systems Inc./(a)/ 47,000 726,620
--------------------------------------------------------------------------------
ValueClick, Inc./(a)/ 61,100 814,463
--------------------------------------------------------------------------------
VeriSign, Inc./(a)/ 155,150 5,200,628
--------------------------------------------------------------------------------
Yahoo! Inc./(a)/ 167,860 6,324,965
--------------------------------------------------------------------------------
14,877,508
--------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-1.86%
Cognizant Technology Solutions Corp.-Class A/(a)/ 88,200 3,733,506
--------------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.88%
Time Warner Inc./(a)/ 193,700 3,765,528
--------------------------------------------------------------------------------
OFFICE ELECTRONICS-1.08%
Zebra Technologies Corp.-Class A/(a)/ 38,550 2,169,594
--------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-0.32%
BlueStream Ventures L.P. (Acquired 08/03/00-04/02/04;
Cost $2,069,655)/(a)(b)(c)(d)(e)/ 2,193,750 651,765
--------------------------------------------------------------------------------
AIM V.I. TECHNOLOGY FUND
MARKET
SHARES VALUE
------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.63%
Applied Materials, Inc./(a)/ 116,400 $ 1,990,440
------------------------------------------------------------------------
KLA-Tencor Corp./(a)/ 27,800 1,294,924
------------------------------------------------------------------------
Lam Research Corp./(a)/ 35,700 1,032,087
------------------------------------------------------------------------
Novellus Systems, Inc./(a)/ 17,800 496,442
------------------------------------------------------------------------
Teradyne, Inc./(a)/ 28,000 477,960
------------------------------------------------------------------------
5,291,853
------------------------------------------------------------------------
SEMICONDUCTORS-15.67%
Altera Corp./(a)/ 145,400 3,009,780
------------------------------------------------------------------------
Analog Devices, Inc. 50,700 1,871,844
------------------------------------------------------------------------
Broadcom Corp.-Class A/(a)/ 87,500 2,824,500
------------------------------------------------------------------------
Fairchild Semiconductor International, Inc./(a)/ 30,500 495,930
------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class A/(a)/ 29,500 525,690
------------------------------------------------------------------------
Freescale Semiconductor Inc.-Class B/(a)/ 15,130 277,787
------------------------------------------------------------------------
Intel Corp. 199,300 4,661,627
------------------------------------------------------------------------
Linear Technology Corp. 57,600 2,232,576
------------------------------------------------------------------------
Maxim Integrated Products, Inc. 59,500 2,522,205
------------------------------------------------------------------------
Microchip Technology Inc. 57,075 1,521,620
------------------------------------------------------------------------
National Semiconductor Corp. 101,800 1,827,310
------------------------------------------------------------------------
PMC-Sierra, Inc./(a)/ 101,500 1,141,875
------------------------------------------------------------------------
Semiconductor HOLDRS Trust 29,800 994,128
------------------------------------------------------------------------
Semtech Corp./(a)/ 38,800 848,556
------------------------------------------------------------------------
Texas Instruments Inc. 166,770 4,105,877
------------------------------------------------------------------------
Xilinx, Inc. 88,300 2,618,095
------------------------------------------------------------------------
31,479,400
------------------------------------------------------------------------
SYSTEMS SOFTWARE-12.01%
Computer Associates International, Inc. 88,000 2,733,280
------------------------------------------------------------------------
McAfee Inc./(a)/ 76,100 2,201,573
------------------------------------------------------------------------
Microsoft Corp. 347,800 9,289,738
------------------------------------------------------------------------
Oracle Corp./(a)/ 169,300 2,322,796
------------------------------------------------------------------------
Symantec Corp./(a)/ 148,000 3,812,480
------------------------------------------------------------------------
VERITAS Software Corp./(a)/ 132,000 3,768,600
------------------------------------------------------------------------
24,128,467
------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.87%
CDW Corp. 26,300 1,745,005
------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-2.73%
American Tower Corp.-Class A/(a)/ 44,300 815,120
------------------------------------------------------------------------
Nextel Communications, Inc.-Class A/(a)/ 58,500 1,755,000
------------------------------------------------------------------------
Nextel Partners, Inc.-Class A/(a)/ 104,220 2,036,459
------------------------------------------------------------------------
NII Holdings Inc./(a)/ 18,500 877,825
------------------------------------------------------------------------
5,484,404
------------------------------------------------------------------------
Total Domestic Common Stocks & Other Equity
Interests
(Cost $141,954,640) 170,578,749
------------------------------------------------------------------------
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-13.63%
BERMUDA-1.54%
Marvell Technology Group Ltd. (Semiconductors)/(a)/ 87,500 $ 3,103,625
- ----------------------------------------------------------------------------------
CANADA-2.15%
ATI Technologies Inc. (Semiconductors)/(a)/ 71,400 1,384,446
- ----------------------------------------------------------------------------------
Celestica Inc. (Electronic Manufacturing Services)/(a)/ 57,200 807,092
- ----------------------------------------------------------------------------------
Cognos, Inc. (Application Software)/(a)/ 33,500 1,476,010
- ----------------------------------------------------------------------------------
Research In Motion Ltd. (Communications
Equipment)/(a)/ 8,000 659,360
- ----------------------------------------------------------------------------------
4,326,908
- ----------------------------------------------------------------------------------
FINLAND -1.69%
Nokia Oyj-ADR (Communications Equipment) 217,063 3,401,377
- ----------------------------------------------------------------------------------
GERMANY-0.79%
SAP A.G.-ADR (Application Software) 36,000 1,591,560
- ----------------------------------------------------------------------------------
INDIA-0.58%
Wipro Ltd.-ADR (IT Consulting & Other Services)/(f)/ 47,000 1,158,550
- ----------------------------------------------------------------------------------
ISRAEL-1.28%
Check Point Software Technologies Ltd.
(Systems Software)/(a)/ 104,000 2,561,520
- ----------------------------------------------------------------------------------
JAPAN-0.15%
NTT DoCoMo, Inc. (Wireless Telecommunication
Services)/(g)/ 159 293,954
- ----------------------------------------------------------------------------------
MEXICO-0.61%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 23,430 1,226,560
- ----------------------------------------------------------------------------------
RUSSIA-0.85%
AO VimpelCom-ADR
(Wireless Telecommunication Services)/(a)/ 47,100 1,702,194
- ----------------------------------------------------------------------------------
SWEDEN-0.94%
Telefonaktiebolaget LM Ericsson-ADR
(Communications Equipment)/(a)/ 59,790 1,882,787
- ----------------------------------------------------------------------------------
TAIWAN-0.77%
Taiwan Semiconductor Manufacturing Co. Ltd.-ADR
(Semiconductors) 183,151 1,554,952
- ----------------------------------------------------------------------------------
UNITED KINGDOM-2.28%
Amdocs Ltd. (Application Software)/(a)/ 134,730 3,536,663
- ----------------------------------------------------------------------------------
Vodafone Group PLC-ADR (Wireless Telecommunication
Services) 37,900 1,037,702
- ----------------------------------------------------------------------------------
4,574,365
- ----------------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests (Cost
$24,110,358) 27,378,352
- ----------------------------------------------------------------------------------
MONEY MARKET FUNDS-1.43%
Premier Portfolio (Cost $2,875,986)/(h)(i)/ 2,875,986 2,875,986
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.99% (excluding investments
purchased with cash collateral from securities loaned)
(Cost $168,940,984) 200,833,087
- ----------------------------------------------------------------------------------
AIM V.I. TECHNOLOGY FUND
MARKET
SHARES VALUE
---------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.45%
Premier Portfolio/(h)(i)(j)/ 898,697 $ 898,697
---------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $898,697) 898,697
---------------------------------------------------------------------------
TOTAL INVESTMENTS-100.44% (Cost $169,839,681) 201,731,784
---------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.44%) (888,642)
---------------------------------------------------------------------------
NET ASSETS-100.00% $ 200,843,142
---------------------------------------------------------------------------
Investment Abbreviations:
ADR- American Depositary Receipt
HOLDRS- Holding Company Depository Receipts
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of this security. The
market value of this security at December 31, 2004 represented 0.32% of the
Fund's Net Assets. This security is considered to be illiquid.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The market value of this security at
December 31, 2004 represented 0.26% of the Fund's Total Investments. See
Note 1A.
(d) The Fund has a remaining commitment of $1,080,000 to purchase additional
interests in BlueStream Ventures L.P., which is subject to the terms of the
limited partnership agreement.
(e) Security is considered venture capital. See Note 1K.
(f) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(g) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 0.15% of the
Fund's Total Investments. See Note 1A.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(i) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
(j) The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions upon
the borrower's return of the securities loaned. See Note 7.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $166,064,998)* $ 197,957,101
- ---------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $3,774,683) 3,774,683
- ---------------------------------------------------------------------------------
Total investments (cost $169,839,681) 201,731,784
- ---------------------------------------------------------------------------------
Receivables for:
Investments sold 1,351,279
- ---------------------------------------------------------------------------------
Fund shares sold 35,261
- ---------------------------------------------------------------------------------
Dividends 43,869
- ---------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 40,454
- ---------------------------------------------------------------------------------
Total assets 203,202,647
- ---------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 390,862
- ---------------------------------------------------------------------------------
Fund shares reacquired 651,987
- ---------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 46,201
- ---------------------------------------------------------------------------------
Collateral upon return of securities loaned 898,697
- ---------------------------------------------------------------------------------
Accrued distribution fees-Series II 101
- ---------------------------------------------------------------------------------
Accrued transfer agent fees 3,947
- ---------------------------------------------------------------------------------
Accrued operating expenses 367,710
- ---------------------------------------------------------------------------------
Total liabilities 2,359,505
- ---------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 200,843,142
- ---------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 688,288,203
- ---------------------------------------------------------------------------------
Undistributed net investment income (loss) (36,600)
- ---------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
foreign currencies and option contracts (519,300,590)
- ---------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 31,892,129
- ---------------------------------------------------------------------------------
$ 200,843,142
- ---------------------------------------------------------------------------------
NET ASSETS:
Series I $ 200,677,050
- ---------------------------------------------------------------------------------
Series II $ 166,092
- ---------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 16,154,169
- ---------------------------------------------------------------------------------
Series II 13,404
- ---------------------------------------------------------------------------------
Series I:
Net asset value per share $ 12.42
- ---------------------------------------------------------------------------------
Series II:
Net asset value per share $ 12.39
- ---------------------------------------------------------------------------------
* At December 31, 2004, securities with an aggregate market value of $868,740
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $35,824) $ 1,340,651
- -------------------------------------------------------------------------------
Dividends from affiliated money market funds (including securities
lending income of $15,275**) 63,366
- -------------------------------------------------------------------------------
Total investment income 1,404,017
- -------------------------------------------------------------------------------
EXPENSES:
Advisory fees 1,387,379
- -------------------------------------------------------------------------------
Administrative services fees 500,491
- -------------------------------------------------------------------------------
Custodian fees 38,738
- -------------------------------------------------------------------------------
Distribution fees-Series II 265
- -------------------------------------------------------------------------------
Transfer agent fees 20,368
- -------------------------------------------------------------------------------
Trustees' fees and retirement benefits 14,645
- -------------------------------------------------------------------------------
Other 161,159
- -------------------------------------------------------------------------------
Total expenses 2,123,045
- -------------------------------------------------------------------------------
Less:Fees waived and expenses reimbursed (3,856)
- -------------------------------------------------------------------------------
Net expenses 2,119,189
- -------------------------------------------------------------------------------
Net investment income (loss) (715,172)
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 18,218,645
- -------------------------------------------------------------------------------
Foreign currencies 38,161
- -------------------------------------------------------------------------------
Option contracts written 97,527
- -------------------------------------------------------------------------------
18,354,333
- -------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities (7,899,245)
- -------------------------------------------------------------------------------
Foreign currencies 266
- -------------------------------------------------------------------------------
(7,898,979)
- -------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and option
contracts 10,455,354
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 9,740,182
- -------------------------------------------------------------------------------
** Dividends from affiliated money market funds are net of income rebate paid
to securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. TECHNOLOGY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (715,172) $ (1,170,897)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 18,354,333 (17,352,650)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (7,898,979) 67,407,749
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,740,182 48,884,202
- ----------------------------------------------------------------------------------------
Share transactions-net:
Series I 19,407,886 17,153,701
- ----------------------------------------------------------------------------------------
Series II 148,977 --
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 19,556,863 17,153,701
- ----------------------------------------------------------------------------------------
Net increase in net assets 29,297,045 66,037,903
- ----------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 171,546,097 105,508,194
- ----------------------------------------------------------------------------------------
End of year (including undistributed net investment income
(loss) of $(36,000) and $(9,203), respectively) $200,843,142 $171,546,097
- ----------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Technology Fund, formerly INVESCO VIF-Technology Fund, (the "Fund") is
a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is
a Delaware statutory trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end series management investment
company consisting of twenty-eight separate portfolios. The Fund currently
offers two classes of shares, Series I and Series II, both of which are offered
to insurance company separate accounts funding variable annuity contracts and
variable life insurance policies ("variable products"). Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. Current Securities and Exchange Commission ("SEC")
guidance, however, requires participating insurance companies offering separate
accounts to vote shares proportionally in accordance with the instructions of
the contract owners whose investments are funded by shares of each portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. On April 30, 2004, the Fund was restructured from a separate
series of INVESCO Variable Investment Funds, Inc. to a new series portfolio of
the Trust.
The Fund's investment objective is to seek capital growth. Companies are
listed in the Schedule of Investments based on the country in which they are
organized.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
AIM V.I. TECHNOLOGY FUND
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net
AIM V.I. TECHNOLOGY FUND
realized and unrealized gain or loss from investments in the Statement of
Operations. Reported net realized foreign currency gains or losses arise
from, (i) sales of foreign currencies, (ii) currency gains or losses
realized between the trade and settlement dates on securities transactions,
and (iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
I. COVERED CALL OPTIONS -- The Fund may write call options, on a covered basis;
that is, the Fund will own the underlying security. When the Fund writes a
covered call option, an amount equal to the premium received by the Fund is
recorded as an asset and an equivalent liability. The amount of the
liability is subsequently "marked-to-market" to reflect the current market
value of the option written. The current market value of a written option is
the mean between the last bid and asked prices on that day. If a written
call option expires on the stipulated expiration date, or if the Fund enters
into a closing purchase transaction, the Fund realizes a gain (or a loss if
the closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the sale
are increased by the premium originally received. A risk in writing a call
option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised.
J. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the Fund
to hedge securities it owns by locking in a minimum price at which the Fund
can sell. If security prices fall, the put option could be exercised to
offset all or a portion of the Fund's resulting losses. At the same time,
because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid secondary
market will exist for any option purchased or sold.
K. VENTURE CAPITAL INVESTMENTS -- The Fund has invested in non-publicly traded
companies, some of which are in the startup or development stages. These
investments are inherently risky, as the markets for the technologies or
products these companies are developing are typically in the early stages
and may never materialize. The Fund could lose the entire investment in
these companies. These investments are valued at fair value as determined in
good faith in accordance with procedures approved by the Board of Trustees.
Investments in privately held venture capital securities are illiquid.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.75% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $963,169. Prior to May 1, 2004,
the Trust had an investment advisory agreement with INVESCO Funds Group, Inc.
("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund paid
advisory fees under similar terms to IFG of $424,210.
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of each Series to 1.30% of average daily net
assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit total
annual operating expenses (excluding certain items discussed below) of each
Series to 1.25% of average daily net assets. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits
are in the form of credits that the Fund receives from banks where the Fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the Fund. AIM did
not waive fees and/or reimburse expenses during the period under this expense
limitation. Further, AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from the affiliated
money market funds on investments by the Fund in such affiliated money market
funds (excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the Fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors. For the period
May 1, 2004 through December 31, 2004, AIM waived fees of $1,930. For the
period January 1, 2004 through April 30, 2004, IFG waived fees of $483.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $1,443 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid
AIM V.I. TECHNOLOGY FUND
$347,297, of which AIM retained $33,470 for services provided by AIM. Prior to
May 1, 2004, the Fund had an administrative services agreement with IFG. For
the period January 1, 2004 through April 30, 2004, under similar terms, IFG was
paid $153,194 for such services, of which IFG retained $11,790 for services
provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $20,368.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has agreed contractually to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit total annual fund operating expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets through April 30, 2006. AIM Distributors did
not reimburse fees during the period under this expense limitation. Pursuant to
the Plan, for the period April 30, 2004 (date sales commenced) through December
31, 2004, the Series II shares paid $265.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC, to invest
daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to
be affiliated. The tables below show the transactions in and earnings from
investments in affiliated money market funds for the year ended December 31,
2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------
Premier Portfolio $1,337,807 $101,096,119 $(99,557,940) $ -- $2,875,986 $48,091 $ --
- ----------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------
Premier Portfolio $ 382,325 $ 83,654,334 $ (83,137,962) $ -- $ 898,697 $15,275 $ --
- -----------------------------------------------------------------------------------------------------------
Total $1,720,132 $184,750,453 $(182,695,902) $ -- $3,774,683 $63,366 $ --
- -----------------------------------------------------------------------------------------------------------
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the
Board of Trustees of the Trust. The procedures have been designed to ensure
that any purchase or sale of securities by the Fund from or to another fund or
portfolio that is or could be considered an affiliate by virtue of having a
common investment advisor (or affiliated investment advisors), common Trustees
and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as
defined under the procedures each transaction is effected at the current market
price. Pursuant to these procedures, during the year ended December 31, 2004,
the Fund engaged in purchases and sales of securities of $587,463 and $472,675,
respectively.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $2,119
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. TECHNOLOGY FUND
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such
collateral will be cash or debt securities issued or guaranteed by the U.S.
Government or any of its agencies. Cash collateral received in connection with
these loans is invested in short-term money market instruments or affiliated
money market funds. It is the Fund's policy to obtain additional collateral
from or return excess collateral to the borrower by the end of the next
business day, following the valuation date of the securities loaned. Therefore,
the value of the collateral held may be temporarily less than the value of the
securities on loan. Lending securities entails a risk of loss to the Fund if
and to the extent that the market value of the securities loaned were to
increase and the borrower did not increase the collateral accordingly, and the
borrower fails to return the securities. The Fund could also experience delays
and costs in gaining access to the collateral. The Fund bears the risk of any
deficiency in the amount of the collateral available for return to the borrower
due to a loss on the collateral invested.
At December 31, 2004, securities with an aggregate value of $868,740 were on
loan to brokers. The loans were secured by cash collateral of $898,697 received
by the Fund and subsequently invested in an affiliated money market fund. For
the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $15,275 for
securities lending transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
-------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
Beginning of year -- $ --
---------------------------------------
Written 2,252 155,178
---------------------------------------
Closed (529) (64,535)
---------------------------------------
Expired (1,723) (90,643)
---------------------------------------
End of year -- $ --
---------------------------------------
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
---------------------------------------------------
Unrealized appreciation--investments $ 30,382,367
---------------------------------------------------
Temporary book/tax differences (37,777)
---------------------------------------------------
Capital loss carryforward (517,789,651)
---------------------------------------------------
Shares of beneficial interest 688,288,203
---------------------------------------------------
Total net assets $ 200,843,142
---------------------------------------------------
AIM V.I. TECHNOLOGY FUND
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, the deferral for tax purposes for certain straddle transactions,
the treatment of partnerships, return of capital and foreign tax on certain
stock dividends. The tax-basis unrealized appreciation on investments amount
includes appreciation on foreign currencies of $26.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
December 31, 2004 to utilizing $509,581,788 of capital loss carryforward in the
fiscal year ended December 31, 2005.
The Fund utilized $2,095,130 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
December 31, 2007 $ 67,963,141
---------------------------------------------
December 31, 2008 262,485,932
---------------------------------------------
December 31, 2009 153,547,080
---------------------------------------------
December 31, 2010 33,793,498
---------------------------------------------
Total capital loss carryforward $517,789,651
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code. To
the extent that unrealized gains as of April 30, 2004, the date of the
organization of AIM V.I. New Technology Fund and INVESCO
VIF-Telecommunications Fund into the Fund, are realized on securities held
in each fund at such date, the capital loss carryforward may be further
limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $222,535,219 and $220,220,733, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $34,149,616
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,767,275)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $30,382,341
-------------------------------------------------------------------------
Cost of investments for tax purposes is $171,349,443.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, partnerships, net operating loss, capital loss carryforward
limitations, prior year return of capital and re-domestication expenses, on
December 31, 2004, undistributed net investment income (loss) was increased by
$711,197, undistributed net realized gain (loss) was decreased by $334,957 and
shares of beneficial interest decreased by $376,240. Further, as a result of
capital loss carryforward limitations and tax deferrals acquired in the
reorganization of AIM V.I. New Technology Fund into the Fund on April 30, 2004,
undistributed net investment income (loss) was decreased by $20,348,
undistributed net realized gain (loss) was decreased by $3,808,765 and shares
of beneficial interest increased by $3,829,113. In addition, as a result of
capital loss carryforward limitations and tax deferrals acquired in the
reorganization of INVESCO VIF-Telecommunications Fund into the Fund on April
30, 2004, undistributed net investment income (loss) was decreased by $3,074,
undistributed net realized gain (loss) was decreased by $8,706,215 and shares
of beneficial interest increased by $8,709,289. These reclassifications had no
effect on the net assets of the Fund.
AIM V.I. TECHNOLOGY FUND
NOTE 12--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2004 2003
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------
Sold:
Series I 3,614,575 $ 42,139,572 13,575,709 $ 135,267,128
- --------------------------------------------------------------------------------------------------
Series II/(b)/ 2,057 20,311 -- --
- --------------------------------------------------------------------------------------------------
Issued in connection with acquisitions:/(c)/
Series I 4,598,616 52,226,205 -- --
- --------------------------------------------------------------------------------------------------
Series II/(b)/ 13,169 149,420 -- --
- --------------------------------------------------------------------------------------------------
Reacquired:
Series I (6,509,875) (74,957,891) (12,045,076) (118,113,427)
- --------------------------------------------------------------------------------------------------
Series II/(b)/ (1,822) (20,754) -- --
- --------------------------------------------------------------------------------------------------
1,716,720 $ 19,556,863 1,530,633 $ 17,153,701
- --------------------------------------------------------------------------------------------------
/(a)/There are three entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 64% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities, which
are considered to be related to the Fund, for providing services to the
Fund, AIM and/or AIM affiliates including but not limited to services such
as securities brokerage, third party record keeping and account servicing
and administrative services. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by these shareholders are
also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
/(c)/As of the open of business on April 30, 2004, the Fund acquired all the
net assets of AIM V.I. New Technology Fund and INVESCO
VIF-Telecommunications Fund pursuant to a plan of reorganization approved
by the Directors/Trustees of the Fund on December 9, 2003 and by the
shareholders of AIM V.I. New Technology and INVESCO VIF-Telecommunications
Fund on April 2, 2004. The acquisition was accomplished by a tax free
exchange of 4,611,785 shares of the Fund for 5,656,964 shares of AIM V.I.
New Technology Fund outstanding and 9,244,509 shares of INVESCO
VIF-Telecommunications Fund outstanding as of the close of business on
April 29, 2004. AIM V.I. New Technology Fund's net assets at that date of
$19,064,848 including $2,583,733 of unrealized appreciation and INVESCO
VIF-Telecommunications Fund's net assets at that date of $33,310,776
including $3,626,227 of unrealized appreciation, were combined with the
Fund. The aggregate net assets of the Fund immediately before the
acquisition were $153,042,987.
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.87 $ 8.17 $ 15.37 $ 28.37
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)/(a)/ (0.08) (0.00)/(b)/ (0.12)/(c)/
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.59 3.78 (7.20) (12.88)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.55 3.70 (7.20) (13.00)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.42 $ 11.87 $ 8.17 $ 15.37
- -------------------------------------------------------------------------------------------------------------------------------
Total return/(d)/ 4.63% 45.29% (46.84)% (45.82)%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $200,556 $171,546 $105,508 $240,253
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.15%/(e)/ 1.10% 1.11% 1.07%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.39)%/(a)(e)/ (0.85)% (0.96)% (0.66)%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 137% 89% 92% 88%
- -------------------------------------------------------------------------------------------------------------------------------
---------
---------
2000
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $ 37.13
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)/(b)/
- ---------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (8.68)
- ---------------------------------------------------------------------------------
Total from investment operations (8.69)
- ---------------------------------------------------------------------------------
Less distributions from net realized gains (0.07)
- ---------------------------------------------------------------------------------
Net asset value, end of period $ 28.37
- ---------------------------------------------------------------------------------
Total return/(d)/ (23.42)%
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $443,773
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.02%
- ---------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.34)%
- ---------------------------------------------------------------------------------
Portfolio turnover rate 82%
- ---------------------------------------------------------------------------------
/(a)/Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
(loss) to average net assets excluding the special dividend are $(0.09)
and (0.82)%, respectively.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.12) and $(0.09) for
the years ended December 31, 2002 and 2000, respectively.
/(c)/Calculated using average shares outstanding.
/(d)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed in
connection with a variable product, which if included would reduce total
returns.
/(e)/Ratios are based on average daily net assets of $184,877,889.
AIM V.I. TECHNOLOGY FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
SERIES II
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $11.09
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)/(a)/
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.35
- --------------------------------------------------------------------------------
Total from investment operations 1.30
- --------------------------------------------------------------------------------
Net asset value, end of period $12.39
- --------------------------------------------------------------------------------
Total return/(b)/ 11.72%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 166
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.40%/(c)/
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.64)%/(a)(c)/
- --------------------------------------------------------------------------------
Portfolio turnover rate/(d)/ 137%
- --------------------------------------------------------------------------------
/(a)/Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
(loss) to average net assets excluding the special dividend are $(0.10)
and (1.07)%, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product, which if included would reduce total returns.
/(c)/Ratios are annualized and based on average daily net assets of $157,574.
/(d)/Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
AIM V.I. TECHNOLOGY FUND
NOTE 14 LEGAL PROCEEDINGS (continued)
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the Federal and state securities laws; (ii) violation
of various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv)
breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; injunctive
relief; disgorgement of management fees; imposition of a constructive trust;
removal of certain directors and/or employees; various corrective measures
under ERISA; rescission of certain Funds' advisory agreements; interest; and
attorneys' and experts' fees.
AIM V.I. TECHNOLOGY FUND
NOTE 14--LEGAL PROCEEDINGS (continued)
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. TECHNOLOGY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM V.I. Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Technology Fund, formerly
known as INVESCO VIF-Technology Fund, (one of the funds constituting AIM
Variable Insurance Funds, formerly known as INVESCO Variable Investment Funds,
Inc., hereafter referred to as the "Fund") at December 31, 2004, 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 periods indicated, in conformity with accounting principles generally
accepted in the United States of America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. TECHNOLOGY FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Technology Fund (now known as
AIM V.I. Technology Fund), ("Fund"), an investment portfolio of INVESCO
Variable Investment Funds, Inc. ("Company"), (now known as AIM Variable
Insurance Funds), a Delaware statutory trust, was held April 2, 2004. The
meeting was held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
VOTES WITHHELD/
MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------
(2) Approval of a new Investment
Advisory Agreement with A I M
Advisors, Inc...................... 12,478,488 630,280 820,171
(3) Approval of a new Sub-Advisory
Agreement between A I M Advisors,
Inc. and INVESCO Institutional
(N.A.), Inc........................ 12,440,563 674,517 813,809
(4)* Approval of an Agreement and Plan
of Reorganization to redomesticate
each series portfolio of Company
as a new series portfolio of AIM
Variable Insurance Funds, an
existing Delaware statutory trust.. 88,123,016 3,299,467 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V. I. TECHNOLOGY FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
DIRECTORSHIP(S)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 HELD BY
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 Trustee 2003 Director, President and Chief Executive None
and Executive Vice President Officer, A I M Management Group Inc.
(financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited
Trustee and Chair Associates (technology consulting (insurance
company) company); and
Captaris, Inc.
(unified messaging
provider)
- ------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- ------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered
Formerly: Partner, law firm of Baker & investment
McKenzie company)
- ------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, (Chairman)
including the Boss Group Ltd. (private (registered
investment and management) and Magellan investment
Insurance Company company); Annuity
and Life Re
Formerly: Director, President and Chief (Holdings), Ltd.
Executive Officer, Volvo Group North (insurance
America, Inc.; Senior Vice President, company)
AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and
Trustee Century Group, Inc. (government affairs Discovery Global
company) and Texana Timber LP Education Fund
(sustainable forestry company) (non-profit)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. TECHNOLOGY FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
DIRECTORSHIP(S)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 HELD BY
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered
investment
company)
- ---------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical
Trustee (California) Group, Inc.
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------
Other Officers
- ---------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- ---------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ---------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio
Manager, INVESCO Institutional (N.A.),
Inc.
- ---------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
AIM V.I. TECHNOLOGY FUND
AIM V.I. TOTAL RETURN FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-TOTAL RETURN
FUND WAS RENAMED AIM V.I. TOTAL RETURN FUND.
AIM V.I. TOTAL RETURN FUND seeks to provide high total
return through both growth and current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. TOTAL RETURN FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The fund's investing style was not highly rewarded by the market during 2004.
The economy had been growing for several quarters, and we positioned the fund to
benefit from continuing economic expansion and correspondingly strong capital
markets. However, economic growth turned out to be strongest in unanticipated
sectors, hampering the effectiveness of our security selections and sector
allocations.
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 3.73%
Series II Shares 3.48
S&P 500 Index (Broad Market Index) 10.87
Custom Total Return Index: 60% S&P 500 Index/40% Lehman
U.S. Aggregate Bond Index (Style-specific Index) 8.39
Lipper Balanced Fund Index
(Peer Group Index) 8.99
Source: Lipper, Inc.
================================================================================
At the beginning of 2004, we positioned the fund to benefit from continued
economic growth by adding more holdings in the cyclical sectors that typically
benefit from growth, such as technology, materials and industrials. But though
economic growth continued, the sectors that outperformed were those usually
considered defensive, such as energy and utilities. This unexpected
development's impact on the equity side of the portfolio caused the fund to
underperform its broad-market benchmark, the S&P 500 Index; its peer group
index, the Lipper Balanced Fund Index; and its custom index, consisting of 60%
S&P 500 Index and 40% Lehman U.S. Aggregate Bond Index, which approximates the
composition of the fund's portfolio. The fixed-income portion of the portfolio
performed in line with investment-grade bonds.
HOW WE INVEST
The fund invests in a mix of equity securities and debt securities in an effort
to cushion against sharp price movements in both equity and debt markets.
Preference is given to dividend-paying equities and investment-grade debt
securities, typically including corporate bonds and obligations of the U.S.
government and government agencies.
The equity portion of the fund's portfolio is normally invested primarily
in large-capitalization stocks possessing one of three attributes that are
attractive relative to the S&P 500 Index: a low price-to-earnings ratio, a high
dividend yield, or consistent growth. The fund's fixed-income portion typically
maintains a defensive duration positioning, an overweight in corporate bonds,
and a modest barbell strategy relative to the benchmark, meaning more short-term
and long-term bonds but fewer intermediate-term bonds.
Our security selection method takes into account both top-down
macroeconomic analysis and bottom-up analysis of individual securities.
MARKET CONDITIONS AND YOUR FUND
The fund's equity portfolio was positioned to benefit from continued economic
expansion and strong capital markets. Based on this expectation, we focused our
equity investment strategy on the technology, materials and industrial sectors,
which are cyclical, or sensitive to economic movements. The fund remained
underweighted (held less than the index) in the more defensive sectors of the
market, such as energy, utilities and consumer staples.
However, while the forecast of continuing economic growth proved correct,
the defensive sectors nevertheless led the market. For much of the year,
investors seemed preoccupied with rising oil prices, the ongoing war in Iraq,
and the uncertainty leading up to the U.S. presidential election. The sectors
that produced the strongest returns were energy and utilities. Materials and
industrials did moderately well, but technology faltered because of investors'
concerns over slowing product demand.
The major detractor from fund performance for the year was Pfizer, which
suffered due to investors' concerns with the potential liability of Celebrex.
This drug was found in one clinical trial to increase patients' risk of heart
================================================================================
PORTFOLIO COMPOSITION
By type of security
[PIE CHART]
U.S. Mortgage-Backed Securities 10.1%
Corporate Bonds & Notes 8.7%
Money Market Funds Plus
Other Assets Less Liabilities 7.9%
U.S. Government Securities 5.9%
Asset-Backed Securities 4.0%
Common Stock 63.4%
TOTAL NET ASSETS $14.4 million
TOTAL NUMBER OF HOLDINGS* 131
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. Johnson & Johnson 2.2%
2. Pfizer Inc. 1.9
3. General Electric Co. 1.9
4. Wal-Mart Stores, Inc. 1.8
5. Eaton Corp. 1.8
6. Citigroup Inc. 1.7
7. Goldman Sachs Group, Inc. (The) 1.7
8. American International Group, Inc. 1.7
9. Microsoft Corp. 1.6
10. Morgan Stanley 1.5
================================================================================
================================================================================
TOP 10 FIXED-INCOME ISSUERS*
1. Federal National Mortgage Association (FNMA) 11.3%
2. U.S. Treasury Securities 4.5
3. Federal Home Loan Mortgage Corp.
(FHLMC) 1.4
4. Credit Suisse First Boston Mortgage Securities Corp. 1.0
5. Verizon Global Funding Corp. 0.8
6. Colgate-Palmolive Co. 0.8
7. Citigroup Inc. 0.7
8. Structured Asset Securities Corp. 0.5
9. Master Asset Securitization Trust 0.5
10. Comcast Cable Communications, Inc. 0.4
================================================================================
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding money market fund holdings.
2
AIM V.I. TOTAL RETURN FUND
attack and stroke. We retained Pfizer's stock because in our opinion, even if
Pfizer were to stop selling Celebrex, the company still had a broad and
profitable business and a strong new drug pipeline capable of sustaining a
healthy earnings stream.
Diversified health care product maker Johnson & Johnson was the top
positive contributor to fund performance. Johnson & Johnson enjoyed an
outstanding year as it exceeded earnings expectations and announced the
acquisition of medical equipment maker Guidant.
The fund's fixed-income segment was positioned to benefit from a rising
interest rate environment. Because of the sustained economic growth during the
past several quarters, we anticipated that the Federal Reserve (the Fed) would
soon begin raising its target federal funds rate to forestall the inflation that
often accompanies economic growth. Under our analysis, such an environment was
likely to reward spread-related sectors--those offering higher yields than
Treasuries. These include corporate bonds and securities backed by residential
or commercial mortgages or by other assets.
Accordingly, we implemented a defensive posture by shortening the fund's
duration--a measure of sensitivity to interest rate changes--and adopting a
modest barbell strategy relative to the benchmark. We also overweighted
corporate bonds, while underweighting Treasuries.
Fixed-income market yields fluctuated considerably during the year due to
economic, U.S. political and geopolitical uncertainties.
Despite mild inflation conditions, the Fed did begin raising the short-term
federal funds rate in mid-year, and raised it four more times by year's end. Our
strategic position of maintaining a short-duration bias proved beneficial
relative to our indexes. The results of overweighting corporates were also
favorable for the fund, as corporates proved to be the best-performing sector
among investment-grade debt securities.
IN CLOSING
As of year's end, we did not anticipate making any major changes in the fund's
positioning. Both the stock and the bond portions of the fund remained
positioned to benefit from continued economic expansion. In the stock portion of
the portfolio, we remain committed to the strategy of emphasizing economically
sensitive market sectors, and we anticipate a market rotation favoring the
growth investment style. The bond portion of the portfolio has maintained its
overweight in corporate bonds and its short duration bias, based on the opinion
that the Fed is likely to continue raising interest rates, though at a measured
pace depending on the inflation rate.
As always, we continue to recommend that investors keep their assets
diversified among various classes of securities, and we thank you for your
continued investment in AIM V.I. Total Return Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
The equity portion of the fund is managed using a team approach. The investment
team includes five portfolio managers who concentrate on stock selection, four
investment professionals who concentrate on portfolio strategies, and three
research analysts.
The following individuals are primarily responsible for the day-to-day
management of the fund's fixed-income portfolio holdings:
[BOWLING PHOTO]
KENNETH R. BOWLING, Chartered Financial Analyst, is co-manager of AIM V.I. Total
Return Fund. Mr Bowling joined INVESCO in 1993. He earned a B.S. in mechanical
engineering and an M.S. in engineering from the University of Louisville.
[KING PHOTO]
RICHARD J. KING, Chartered Financial Analyst, senior portfolio manager, is
co-manager of AIM V.I. Total Return Fund. His investment career began in 1984
and he joined INVESCO in 2000. Mr. King earned a B.S. in business administration
at The Ohio State University.
[JOHNSON PHOTO]
STEPHEN M. JOHNSON, Chartered Financial Analyst, is a manager of AIM V.I. Total
Return Fund. He began his investment career in 1986 and joined INVESCO in 1991.
Mr. Johnson earned a B.S. in Petroleum Engineering from the University of Kansas
and an M.B.A. from Rice University.
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
At any given time, the fund may be subject to sector risk, which means a certain
sector may underperform other sectors or the market as a whole. The fund is not
limited with respect to the sectors in which it can invest.
International investing presents certain risks not associated with
investing solely in the United States. These include risks relating to
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 holdings,
differences in accounting, political risks and the lesser degree of public
information required to be provided by non-U.S. companies. The fund may invest
up to 25% of its assets in the securities of non-U.S. issuers. Securities of
Canadian issuers and American Depositary Receipts are not subject to this 25%
limitation.
The fund invests in securities issued or backed by the U.S. government, its
agencies or instrumentalities. They offer a high degree of safety and, in the
case of government securities, are guaranteed as to timely payment of principal
and interest if held to maturity. Fund shares are not insured, and their value
or yield will vary with market conditions.
The fund may invest a portion of its assets in mortgage-backed securities,
which may lose value if mortgages are prepaid in response to falling interest
rates.
3
AIM V.I. TOTAL RETURN FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs, including management
fees, distribution and/or service fees (12b-l), and other fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period, July 1, 2004 -
December 31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
your actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs. Therefore, the hypothetical information is useful in
comparing ongoing costs, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (07/01/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1,037.30 $6.66 $1,018.60 $6.60
Series II 1,000.00 1,035.70 7.42 1,017.85 7.35
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual
expenses and will differ from the hypothetical ending account value which
is based on the fund's expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004, to December 31, 2004, was 3.73% and 3.57% for Series I
and Series II shares, respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (1.30% and 1.45%
for Series I and Series II shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
================================================================================
4
AIM V.I. TOTAL RETURN FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the early years depicted in the chart before
reinvested distributions and compounding create the potential for the original
investment to grow to very large numbers. Had the chart used a linear scale
along its vertical axis, you would not be able to see as clearly the movements
in the value of the fund and the indexes in the early years depicted. We use a
logarithmic scale in financial reports of funds that have more than five years
of performance history.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
10 Years 6.53%
5 Years 0.98
1 Year 3.73
Series II Shares
10 Years 6.26%
5 Years 0.73
1 Year 3.48
================================================================================
Returns since the inception date of Series II shares are historical. All other
returns are the blended returns of the historical performance of the fund's
Series II shares since their inception and the restated historical performance
of the fund's Series I shares (for periods prior to inception of the Series II
shares) adjusted to reflect the higher Rule 12b-1 fees applicable to the Series
II shares. The inception date of the fund's Series II shares is 4/30/04. The
Series I and Series II shares invest in the same portfolio of securities and
will have substantially similar performance, except to the extent that expenses
borne by each class differ.
================================================================================
RESULTS OF A $10,000 INVESTMENT
6/1/94-12/31/04 Index results from 5/31/94
[MOUNTAIN CHART]
60% S&P 500 Index/
AIM V.I. Total Return S&P 500 40% Lehman U.S. Lipper Balanced
Date Fund-Series I Index Aggregate Bond Index Fund Index
- ------- --------------------- ------- -------------------- ---------------
5/31/94 $10000 $10000 $10000 $10000
6/94 10040 9755 9844 9826
9/94 10080 10231 10157 10114
12/94 10175 10230 10173 10004
3/95 10700 11224 10970 10608
6/95 11385 12294 11864 11351
9/95 11879 13271 12521 11960
12/95 12495 14069 13187 12494
3/96 12773 14824 13512 12774
6/96 13122 15489 13906 13033
9/96 13369 15967 14272 13376
12/96 14017 17297 15158 14125
3/97 14336 17762 15375 14191
6/97 15873 20860 17189 15720
9/97 16849 22422 18200 16730
12/97 17228 23066 18737 16992
3/98 18537 26281 20405 18336
6/98 18461 27154 21006 18615
9/98 17196 24459 20134 17537
12/98 18877 29663 22669 19555
3/99 18660 31140 23298 19869
6/99 20141 33331 24195 20762
9/99 18103 31255 23347 19901
12/99 18236 35902 25383 21310
3/00 17746 36724 25987 21945
6/00 17525 35748 25750 21681
9/00 17642 35402 25926 22112
12/00 17845 32634 25132 21819
3/01 17048 28767 23628 20726
6/01 17818 30450 24523 21454
9/01 16522 25982 22748 19828
12/01 17582 28758 24204 21113
3/02 17899 28838 24266 21240
6/02 16684 24976 22624 19837
9/02 14766 20664 20621 17878
12/02 15783 22405 21828 18857
3/03 15412 21699 21538 18510
6/03 17030 25038 23719 20529
9/03 17257 25700 24091 20951
12/03 18458 28828 25860 22616
3/04 18530 29316 26400 23155
6/04 18459 29820 26410 23125
9/04 18180 29262 26450 23167
12/04 $19146 $31962 $28003 $24648
Source: Lipper, Inc.
================================================================================
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or financial advisor for the most recent
month-end variable product performance. Performance figures reflect fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
AIM V.I. Total Return Fund, a series portfolio of AIM Variable Insurance
Funds, is currently offered through insurance companies issuing variable
products. You cannot purchase shares of the fund directly. Performance figures
given represent the fund and are not intended to reflect actual variable product
values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return. *
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --registered trademark-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
The fund uses a custom index composed of 60% Standard & Poor's Composite
Index of 500 Stocks (the S&P 500 Index) and 40% Lehman U.S. Aggregate Bond
Index. The unmanaged S&P 500 Index is an index of common stocks frequently used
as a general measure of U.S. stock market performance. The unmanaged Lehman U.S.
Aggregate Bond Index, which represents the U.S. investment-grade fixed-rate bond
market (including government and corporate securities, mortgage pass-through
securities and asset-backed securities), is compiled by Lehman Brothers, a
global investment bank.
The unmanaged Lipper Balanced Fund Index represents an average of the 30
largest balanced funds tracked by Lipper, Inc., an independent mutual fund
performance monitor. It is calculated daily, with adjustments for distributions
as of the ex-dividend dates.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
* Per NASD requirements, the most recent month-end performance data at the
fund level, excluding variable product charges, is available on this AIM
automated information line, 866-702-4402. As mentioned above, for the most
recent month-end performance including variable product charges, please
contact your variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
-----------------------------------------------------------
COMMON STOCKS-63.41%
AEROSPACE & DEFENSE-2.48%
Honeywell International Inc. 4,220 $ 149,430
-----------------------------------------------------------
United Technologies Corp. 2,000 206,700
-----------------------------------------------------------
356,130
-----------------------------------------------------------
ALUMINUM-0.80%
Alcoa Inc. 3,640 114,369
-----------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-0.92%
Bank of New York Co., Inc. (The) 3,970 132,677
-----------------------------------------------------------
BIOTECHNOLOGY-0.74%
Amgen Inc./(a)/ 1,650 105,847
-----------------------------------------------------------
CASINOS & GAMING-0.76%
International Game Technology 3,170 108,985
-----------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.05%
Cisco Systems, Inc./(a)/ 9,140 176,402
-----------------------------------------------------------
QUALCOMM Inc. 2,790 118,296
-----------------------------------------------------------
294,698
-----------------------------------------------------------
COMPUTER HARDWARE-2.37%
Dell Inc./(a)/ 5,110 215,335
-----------------------------------------------------------
International Business Machines Corp. 1,270 125,197
-----------------------------------------------------------
340,532
-----------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-1.22%
EMC Corp./(a)/ 11,820 175,763
-----------------------------------------------------------
CONSTRUCTION & FARM MACHINERY &
HEAVY TRUCKS-0.80%
Deere & Co. 1,550 115,320
-----------------------------------------------------------
CONSUMER FINANCE-1.08%
MBNA Corp. 5,510 155,327
-----------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-0.84%
First Data Corp. 2,820 119,963
-----------------------------------------------------------
DIVERSIFIED CHEMICALS-1.23%
E. I. du Pont de Nemours & Co. 1,570 77,008
-----------------------------------------------------------
PPG Industries, Inc. 1,470 100,195
-----------------------------------------------------------
177,203
-----------------------------------------------------------
DRUG RETAIL-1.50%
Walgreen Co. 5,610 215,256
-----------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-1.01%
Emerson Electric Co. 2,065 144,756
-----------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------
FOREST PRODUCTS-0.80%
Weyerhaeuser Co. 1,700 $ 114,274
-----------------------------------------------------------
GENERAL MERCHANDISE STORES-0.83%
Target Corp. 2,290 118,920
-----------------------------------------------------------
HEALTH CARE EQUIPMENT-1.15%
Boston Scientific Corp./(a)/ 2,120 75,366
-----------------------------------------------------------
Medtronic, Inc. 1,820 90,399
-----------------------------------------------------------
165,765
-----------------------------------------------------------
HOME IMPROVEMENT RETAIL-2.40%
Home Depot, Inc. (The) 3,240 138,478
-----------------------------------------------------------
Lowe's Cos., Inc. 3,570 205,596
-----------------------------------------------------------
344,074
-----------------------------------------------------------
HOUSEHOLD PRODUCTS-0.71%
Procter & Gamble Co. (The) 1,850 101,898
-----------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-1.80%
Wal-Mart Stores, Inc. 4,900 258,818
-----------------------------------------------------------
INDUSTRIAL CONGLOMERATES-1.85%
General Electric Co. 7,280 265,720
-----------------------------------------------------------
INDUSTRIAL GASES-2.50%
Air Products & Chemicals, Inc. 2,470 143,186
-----------------------------------------------------------
Praxair, Inc. 4,890 215,893
-----------------------------------------------------------
359,079
-----------------------------------------------------------
INDUSTRIAL MACHINERY-4.11%
Eaton Corp. 3,540 $ 256,154
-----------------------------------------------------------
Illinois Tool Works Inc. 1,420 131,606
-----------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 2,520 202,356
-----------------------------------------------------------
590,116
-----------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-4.40%
Goldman Sachs Group, Inc. (The) 2,320 241,373
-----------------------------------------------------------
Merrill Lynch & Co., Inc. 2,820 168,551
-----------------------------------------------------------
Morgan Stanley 3,990 221,525
-----------------------------------------------------------
631,449
-----------------------------------------------------------
MOVIES & ENTERTAINMENT-0.69%
Viacom Inc.-Class B 2,740 99,709
-----------------------------------------------------------
MULTI-LINE INSURANCE-1.66%
American International Group, Inc. 3,620 237,725
-----------------------------------------------------------
OIL & GAS DRILLING-1.00%
ENSCO International Inc. 1,300 41,262
-----------------------------------------------------------
Transocean Inc. (Cayman Islands)/(a)/ 2,420 102,584
-----------------------------------------------------------
143,846
-----------------------------------------------------------
AIM V.I. TOTAL RETURN FUND
MARKET
SHARES VALUE
----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-2.47%
Citigroup Inc. 5,093 $ 245,381
----------------------------------------------------------------------
JPMorgan Chase & Co. 2,790 108,838
----------------------------------------------------------------------
354,219
----------------------------------------------------------------------
PHARMACEUTICALS-6.61%
Forest Laboratories, Inc./(a)/ 2,870 128,748
----------------------------------------------------------------------
Johnson & Johnson 4,940 313,295
----------------------------------------------------------------------
Lilly (Eli) & Co. 2,270 128,823
----------------------------------------------------------------------
Pfizer Inc. 10,230 275,085
----------------------------------------------------------------------
Wyeth 2,420 103,068
----------------------------------------------------------------------
949,019
----------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.72%
Applied Materials, Inc./(a)/ 6,090 104,139
----------------------------------------------------------------------
SEMICONDUCTORS-4.70%
Altera Corp./(a)/ 4,840 100,188
----------------------------------------------------------------------
Intel Corp. 8,080 188,991
----------------------------------------------------------------------
Linear Technology Corp. 3,240 125,582
----------------------------------------------------------------------
Maxim Integrated Products, Inc. 1,550 65,705
----------------------------------------------------------------------
Texas Instruments Inc. 7,880 194,006
----------------------------------------------------------------------
674,472
----------------------------------------------------------------------
SOFT DRINKS-0.65%
PepsiCo, Inc. 1,800 93,960
----------------------------------------------------------------------
SPECIALTY STORES-1.09%
Bed Bath & Beyond Inc./(a)/ 2,420 96,389
----------------------------------------------------------------------
Tiffany & Co. 1,870 59,784
----------------------------------------------------------------------
156,173
----------------------------------------------------------------------
SYSTEMS SOFTWARE-2.49%
Microsoft Corp. 8,710 232,644
----------------------------------------------------------------------
Symantec Corp./(a)/ 4,840 124,678
----------------------------------------------------------------------
357,322
----------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-2.98%
Fannie Mae 2,440 173,752
----------------------------------------------------------------------
PMI Group, Inc. (The) 2,570 107,298
----------------------------------------------------------------------
Radian Group Inc. 2,770 147,475
----------------------------------------------------------------------
428,525
----------------------------------------------------------------------
Total Common Stocks
(Cost $8,433,839) 9,106,048
----------------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. MORTGAGE-BACKED SECURITIES-10.08%
Federal National Mortgage Association
(FNMA)-10.08%
Pass Through Ctfs.,
5.00%, 01/01/17 to 03/01/34/(b)/ $ 527,349 532,782
----------------------------------------------------------------------
4.50%, 05/01/18/(b)/ 771,095 770,618
----------------------------------------------------------------------
5.50%, 10/01/34/(b)/ 142,502 144,798
----------------------------------------------------------------------
Total U.S. Mortgage-Backed Securities
(Cost $1,454,293) 1,448,198
----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- ---------------------------------------------------------------------------------
BONDS & NOTES-8.68%
AUTOMOBILE MANUFACTURERS-0.18%
Ford Motor Co., Unsec. Global Notes,
7.45%, 07/16/31/(b)/ $ 5,000 $ 5,030
- ---------------------------------------------------------------------------------
General Motors Corp., Sr. Unsec. Global Deb.,
8.25%, 07/15/23/(b)/ 20,000 20,835
- ---------------------------------------------------------------------------------
25,865
- ---------------------------------------------------------------------------------
BROADCASTING & CABLE TV-0.56%
Clear Channel Communications, Inc., Sr. Unsec. Notes,
5.00%, 03/15/12/(b)/ 10,000 9,912
- ---------------------------------------------------------------------------------
Comcast Cable Communications, Inc., Sr. Unsec. Unsub.
Notes, 6.75%, 01/30/11/(b)/ 50,000 56,122
- ---------------------------------------------------------------------------------
Cox Communications, Inc., Notes, 4.63%, 01/15/10
(Acquired 12/10/04; Cost $14,984)/(b)(c)/ 15,000 14,971
- ---------------------------------------------------------------------------------
81,005
- ---------------------------------------------------------------------------------
CONSUMER FINANCE-0.74%
Capital One Bank, Sub. Notes, 6.50%, 06/13/13/(b)/ 15,000 16,426
- ---------------------------------------------------------------------------------
Ford Motor Credit Co., Global Notes, 7.88%, 06/15/10/(b)/ 10,000 11,005
- ---------------------------------------------------------------------------------
Ford Motor Credit Co., Unsec. Global Notes,
7.38%, 10/28/09/(b)/ 10,000 10,791
- ---------------------------------------------------------------------------------
General Motors Acceptance Corp., Floating Rate Notes,
3.02%, 07/16/07/(b)(d)/ 15,000 14,771
- ---------------------------------------------------------------------------------
MBNA Corp., Notes, 6.13%, 03/01/13/(b)/ 50,000 53,629
- ---------------------------------------------------------------------------------
106,622
- ---------------------------------------------------------------------------------
DEPARTMENT STORES-0.23%
Federated Department Stores, Inc., Bonds,
6.79%, 07/15/27/(b)/ 30,000 33,012
- ---------------------------------------------------------------------------------
DIVERSIFIED BANKS-0.07%
Wachovia Bank N.A., Sub. Global Notes,
4.80%, 11/01/14/(b)/ 10,000 9,962
- ---------------------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS-0.31%
Credit Suisse First Boston U.S.A., Inc., Global Notes,
6.13%, 11/15/11/(b)/ 10,000 10,986
- ---------------------------------------------------------------------------------
JP Morgan Chase & Co., Global Sub. Notes,
6.75%, 02/01/11/(b)/ 30,000 33,756
- ---------------------------------------------------------------------------------
44,742
- ---------------------------------------------------------------------------------
ELECTRIC UTILITIES-0.72%
Ohio Power Co.-Series G, Sr. Unsec. Global Notes,
6.60%, 02/15/33/(b)/ 25,000 27,932
- ---------------------------------------------------------------------------------
Pacific Gas & Electric Co., First Mortgage Bonds,
6.05%, 03/01/34/(b)/ 30,000 31,257
- ---------------------------------------------------------------------------------
PPL Energy Supply LLC,
Sr. Unsec. Notes, 5.40%, 08/15/14/(b)/ 5,000 5,094
- ---------------------------------------------------------------------------------
Series A, Sr. Unsec. Global Notes, 6.40%, 11/01/11/(b)/ 10,000 10,921
- ---------------------------------------------------------------------------------
TXU Energy Co., Sr. Global Notes, 7.00%, 03/15/13/(b)/ 25,000 27,972
- ---------------------------------------------------------------------------------
103,176
- ---------------------------------------------------------------------------------
FOREST PRODUCTS-0.17%
Weyerhaeuser Co., Unsec. Global Deb., 7.38%, 03/15/32/(b)/ 20,000 23,713
- ---------------------------------------------------------------------------------
AIM V.I. TOTAL RETURN FUND
PRINCIPAL MARKET
AMOUNT VALUE
-----------------------------------------------------------------------------
HOMEBUILDING-0.18%
Centex Corp., Sr. Unsec. Notes, 5.70%, 05/15/14/(b)/ $ 25,000 $ 25,920
-----------------------------------------------------------------------------
HOUSEHOLD PRODUCTS-0.75%
Colgate-Palmolive Co.-Series C, Medium Term Notes,
5.58%, 11/06/08/(b)/ 100,000 107,024
-----------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-1.53%
BellSouth Corp., Bonds, 6.55%, 06/15/34/(b)/ 20,000 21,948
-----------------------------------------------------------------------------
BellSouth Corp., Global Bonds, 5.20%, 09/15/14/(b)/ 15,000 15,299
-----------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global Bonds,
8.75%, 06/15/30/(b)/ 10,000 13,187
-----------------------------------------------------------------------------
Koninklijke (Royal) KPN N.V. (Netherlands), Sr. Unsub.
Global Notes, 8.00%, 10/01/10/(b)/ 20,000 23,589
-----------------------------------------------------------------------------
SBC Communications Inc., Global Notes,
5.10%, 09/15/14/(b)/ 20,000 20,232
-----------------------------------------------------------------------------
6.15%, 09/15/34/(b)/ 5,000 5,174
-----------------------------------------------------------------------------
Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes,
6.88%, 11/15/28/(b)/ 5,000 5,481
-----------------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec. Unsub. Global
Notes, 7.25%, 12/01/10/(b)/ 100,000 114,714
-----------------------------------------------------------------------------
219,624
-----------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-0.57%
Goldman Sachs Group, Inc. (The), Global Notes,
4.75%, 07/15/13/(b)/ 15,000 14,867
-----------------------------------------------------------------------------
Lehman Brothers Holdings Inc., Unsec. Unsub.
Global Notes, 3.50%, 08/07/08/(b)/ 10,000 9,910
-----------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium Term Notes,
5.30%, 09/30/15/(b)/ 5,000 5,090
-----------------------------------------------------------------------------
Morgan Stanley, Sr. Unsec. Unsub. Global Notes,
5.30%, 03/01/13/(b)/ 50,000 51,812
-----------------------------------------------------------------------------
81,679
-----------------------------------------------------------------------------
MOVIES & ENTERTAINMENT-0.08%
Time Warner Inc., Sr. Unsec. Gtd. Unsub. Global Notes,
7.63%, 04/15/31/(b)/ 10,000 12,083
-----------------------------------------------------------------------------
MULTI-LINE INSURANCE-0.07%
Loews Corp., Unsec. Unsub. Notes, 5.25%, 03/15/16/(b)/ 10,000 9,811
-----------------------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-0.32%
Pemex Project Funding Master Trust, Unsec. Gtd. Unsub.
Global Notes, 7.38%, 12/15/14/(b)/ 10,000 11,095
-----------------------------------------------------------------------------
XTO Energy, Inc., Notes, 5.00%, 01/31/15
(Acquired 09/20/04; Cost $14,988)/(b)(c)/ 15,000 14,933
-----------------------------------------------------------------------------
XTO Energy, Inc., Unsec. Notes, 4.90%, 02/01/14/(b)/ 20,000 19,990
-----------------------------------------------------------------------------
46,018
-----------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.17%
Valero Energy Corp., Unsec. Notes, 7.50%, 04/15/32/(b)/ $ 20,000 $ 24,112
- ----------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.96%
Citigroup Inc., Sr. Unsec. Global Notes, 4.13%, 06/30/05/(b)/ 100,000 100,686
- ----------------------------------------------------------------------------------
General Electric Capital Corp.-Series A, Medium Term
Global Notes, 3.75%, 12/15/09/(b)/ 15,000 14,791
- ----------------------------------------------------------------------------------
HSBC Finance Corp., Sr. Unsec. Global Notes,
6.75%, 05/15/11/(b)/ 20,000 22,594
- ----------------------------------------------------------------------------------
138,071
- ----------------------------------------------------------------------------------
PUBLISHING-0.15%
News America Inc., Sr. Unsec. Gtd. Global Notes,
6.55%, 03/15/33/(b)/ 20,000 21,144
- ----------------------------------------------------------------------------------
RAILROADS-0.10%
Union Pacific Corp., Sr. Unsec. Notes, 4.88%, 01/15/15/(b)/ 15,000 14,983
- ----------------------------------------------------------------------------------
REAL ESTATE-0.26%
Simon Property Group, L.P., Unsec. Unsub. Global Notes,
6.35%, 08/28/12/(b)/ 35,000 38,018
- ----------------------------------------------------------------------------------
SOVEREIGN DEBT-0.30%
United Mexican States (Mexico), Global Notes,
7.50%, 01/14/12/(b)/ 25,000 28,391
- ----------------------------------------------------------------------------------
United Mexican States (Mexico)-Series A, Medium Term
Global Notes, 6.75%, 09/27/34/(b)/ 15,000 14,850
- ----------------------------------------------------------------------------------
43,241
- ----------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-0.21%
Countrywide Home Loans, Inc.,-Series M, Gtd. Medium
Term Notes, 4.13%, 09/15/09/(b)/ 30,000 29,915
- ----------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-0.05%
AT&T Wireless Services Inc., Sr. Unsec. Unsub.
Global Notes, 8.75%, 03/01/31/(b)/ 5,000 6,748
- ----------------------------------------------------------------------------------
Total Bonds & Notes
(Cost $1,215,051) 1,246,488
- ----------------------------------------------------------------------------------
U.S. TREASURY SECURITIES-4.50%
U.S. TREASURY NOTES-2.07%
1.88%, 11/30/05/(b)/ 300,000 297,492
- ----------------------------------------------------------------------------------
U.S. TREASURY BONDS-2.43%
8.13%, 08/15/19/(b)/ 180,000 245,840
- ----------------------------------------------------------------------------------
6.00%, 02/15/26/(b)/ 90,000 103,205
- ----------------------------------------------------------------------------------
349,045
- ----------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $647,363) 646,537
- ----------------------------------------------------------------------------------
AIM V.I. TOTAL RETURN FUND
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES-4.06%
COMMERCIAL MORTGAGE
OBLIGATIONS-4.06%
ABN AMRO Holding N.V. (Netherlands)-Series 2003-10,
Class A1, Pass Through Ctfs., 4.50%, 09/25/18/(b)/ $ 48,178 $ 47,742
- -------------------------------------------------------------------------------
Capital One Multi-Asset Execution Trust-Series
2003-B4, Class B4, Floating Rate Pass Through Ctfs.,
3.20%, 07/15/11/(b)(e)/ 35,000 35,660
- -------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage Securities Corp.-
Series 2004-AR3, Class 5A1, Pass Through Ctfs.,
4.82%, 04/25/34/(b)/ 41,878 41,860
- -------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage Securities Corp.-
Series 2004-AR7, Class 2A1, Pass Through Ctfs.,
4.89%, 11/25/34/(b)/ 45,299 45,518
- -------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage Securities Corp.-
Series 2004-C4, Class A6, Pass Through Ctfs.,
4.69%, 10/15/39/(b)/ 50,000 49,509
- -------------------------------------------------------------------------------
Fannie Mae Whole Loan-Series 2004-W2, Class 4A, Pass
Through Ctfs., 4.26%, 02/25/44/(b)/ 54,266 55,921
- -------------------------------------------------------------------------------
Fannie Mae Grantor Trust-Series 2004-T1, Class 2A,
Pass Through Ctfs., 3.68%, 08/25/43/(b)/ 117,781 118,408
- -------------------------------------------------------------------------------
Master Asset Securitization Trust-Series 2003-8, Class
1A1, Pass Through Ctfs., 5.50%, 09/25/33/(b)/ 77,033 77,427
- -------------------------------------------------------------------------------
Morgan Stanley Mortgage Loan Trust-Series 2004-6AR,
Class 2A2, Pass Through Ctfs., 4.17%, 08/25/34/(b)/ 17,651 17,700
- -------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
- ---------------------------------------------------------------------------------
Commercial Mortgage
Obligations-(Continued)
Structured Asset Securities Corp.-Series 2004-2AC, Class
A1, Pass Through Ctfs., 5.05%, 02/25/34/(b)/ $ 76,534 $ 77,625
- ---------------------------------------------------------------------------------
Vanderbilt Mortgage Finance Inc.-Series 2002-B, Class
A4, Pass Through Ctfs., 5.84%, 02/07/26/(b)/ 15,000 15,381
- ---------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost $587,517) 582,751
- ---------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
SECURITIES-1.41%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.41%
Unsec. Global Notes,
2.88%, 09/15/05/(b)/ 150,000 150,151
- ---------------------------------------------------------------------------------
6.25%, 07/15/32/(b)/ 45,000 51,623
- ---------------------------------------------------------------------------------
Total U.S. Government Agency Securities
(Cost $198,002) 201,774
- ---------------------------------------------------------------------------------
SHARES
MONEY MARKET FUNDS-7.65%
Premier Portfolio
(Cost $1,098,425)/(f)(g)/ 1,098,425 1,098,425
- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS-99.79% (Cost $13,634,490) 14,330,221
- ---------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.21% 30,441
- ---------------------------------------------------------------------------------
NET ASSETS-100.00% $ 14,360,662
- ---------------------------------------------------------------------------------
Investment Abbreviations:
Ctfs. Certificates
Deb. Debentures
Gtd. Guaranteed
Sr. Senior
Sub. Subordinated
Unsec. Unsecured
Unsub. Unsubordinated
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2004 was $4,125,748, which represented 28.79% of the Fund's Total
Investments. See Note 1A.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$29,904, which represented 0.21% of the Fund's Net Assets. These securities
are considered to be illiquid.
(d) Interest rate is redetermined quarterly. Rate shown is the rate in effect
on December 31, 2004.
(e) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2004.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. TOTAL RETURN FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $12,536,065) $13,231,796
------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $1,098,425) 1,098,425
------------------------------------------------------------------------------
Total investments (cost $13,634,490) 14,330,221
------------------------------------------------------------------------------
Receivables for:
Fund shares sold 38,491
------------------------------------------------------------------------------
Dividends and interest 41,873
------------------------------------------------------------------------------
Amount due from advisor 6,060
------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 5,572
------------------------------------------------------------------------------
Total assets 14,422,217
------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 3,154
------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 6,123
------------------------------------------------------------------------------
Accrued administrative services fees 22,484
------------------------------------------------------------------------------
Accrued distribution fees-Series II 4
------------------------------------------------------------------------------
Accrued transfer agent fees 357
------------------------------------------------------------------------------
Accrued operating expenses 29,433
------------------------------------------------------------------------------
Total liabilities 61,555
------------------------------------------------------------------------------
Net assets applicable to shares outstanding $14,360,662
------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $15,405,733
------------------------------------------------------------------------------
Undistributed net investment income 177,475
------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities (1,918,277)
------------------------------------------------------------------------------
Unrealized appreciation of investment securities 695,731
------------------------------------------------------------------------------
$14,360,662
------------------------------------------------------------------------------
NET ASSETS:
Series I $14,350,067
------------------------------------------------------------------------------
Series II $ 10,595
------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 1,109,910
------------------------------------------------------------------------------
Series II 821
------------------------------------------------------------------------------
Series I:
Net asset value per share $ 12.93
------------------------------------------------------------------------------
Series II:
Net asset value per share $ 12.91
------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
INVESTMENT INCOME:
Interest $ 204,305
-----------------------------------------------------------------------------
Dividends 149,781
-----------------------------------------------------------------------------
Dividends from affiliated money market funds 8,203
-----------------------------------------------------------------------------
Total investment income 362,289
-----------------------------------------------------------------------------
EXPENSES:
Advisory fees 112,671
-----------------------------------------------------------------------------
Administrative services fees 73,369
-----------------------------------------------------------------------------
Custodian fees 9,091
-----------------------------------------------------------------------------
Distribution fees-Series II 17
-----------------------------------------------------------------------------
Transfer agent fees 3,052
-----------------------------------------------------------------------------
Trustees' fees and retirement benefits 10,608
-----------------------------------------------------------------------------
Reports to shareholders 24,819
-----------------------------------------------------------------------------
Professional fees 36,330
-----------------------------------------------------------------------------
Other 5,162
-----------------------------------------------------------------------------
Total expenses 275,119
-----------------------------------------------------------------------------
Less:Fees waived (87,778)
-----------------------------------------------------------------------------
Net expenses 187,341
-----------------------------------------------------------------------------
Net investment income 174,948
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 742,157
-----------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment
securities (440,964)
-----------------------------------------------------------------------------
Net gain from investment securities 301,193
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 476,141
-----------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. TOTAL RETURN FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004 2003
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 174,948 $ 248,896
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities 742,157 591,762
- -------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities (440,964) 1,524,638
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 476,141 2,365,296
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (243,375) (378,364)
- -------------------------------------------------------------------------------------------------------------------------------
Series II (179) --
- -------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (243,554) (378,364)
- -------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I (1,557,609) (1,363,161)
- -------------------------------------------------------------------------------------------------------------------------------
Series II 10,179 --
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (1,547,430) (1,363,161)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,314,843) 623,771
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 15,675,505 15,051,734
- -------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $177,475 and $240,708, respectively) $14,360,662 $15,675,505
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. TOTAL RETURN FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Total Return Fund, formerly INVESCO VIF-Total Return Fund, (the
"Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust").
The Trust is a Delaware statutory trust registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end series management
investment company consisting of twenty-eight separate portfolios. The Fund
currently offers two classes of shares, Series I and Series II, both of which
are offered to insurance company separate accounts funding variable annuity
contracts and variable life insurance policies ("variable products"). Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. Current Securities and Exchange
Commission ("SEC") guidance, however, requires participating insurance
companies offering separate accounts to vote shares proportionally in
accordance with the instructions of the contract owners whose investments are
funded by shares of each portfolio or class. The assets, liabilities and
operations of each portfolio are accounted for separately. Information
presented in these financial statements pertains only to the Fund. On April 30,
2004, the Fund was restructured from a separate series of INVESCO Variable
Investment Funds, Inc. to a new series portfolio of the Trust.
The Fund's investment objective is to seek a high total return through both
growth and current income. Each company listed in the Schedule of Investments
is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date. Bond premiums and
discounts are amortized and/or accreted for financial reporting purposes.
AIM V.I. TOTAL RETURN FUND
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.75% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $73,128. Prior to May 1, 2004,
the Trust had an investment advisory agreement with INVESCO Funds Group, Inc.
("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund paid
advisory fees under similar terms to IFG of $39,543. AIM has entered into a
sub-advisory agreement with INVESCO Institutional (N.A.), Inc. ("INVESCO")
whereby AIM pays INVESCO 40% of the fee paid by the Fund to AIM. Effective
January 1, 2005 through June 30, 2006, AIM has contractually agreed to waive
advisory fees to the extent necessary so that the advisory fees payable by the
Fund (based on the Fund's average daily net assets) do not exceed the annual
rate of 0.62% of the first $250 million, plus 0.605% of the next $250 million,
plus 0.59% of the next $500 million, plus 0.575% of the next $1.5 billion, plus
0.56% of the next $2.5 billion, plus 0.545% of the next $2.5 billion, plus
0.53% of the next $2.5 billion, plus 0.515% of the Fund's average daily net
assets in excess of $10 billion.
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of each Series to 1.30% of average daily net
assets, through April 30, 2006. Prior to May 1, 2004, AIM had agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit total
annual operating expenses (excluding certain items discussed below) of each
Series to 1.15% of average daily net assets. In determining the advisor's
obligation to waive advisory fees and/or reimburse expenses, the following
expenses are not taken into account, and could cause the total annual fund
operating expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees,
if any; (ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits
are in the form of credits that the Fund receives from banks where the Fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the Fund. Further,
AIM has voluntarily agreed to waive advisory fees of the Fund in the amount of
25% of the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors.
For the year ended December 31, 2004, AIM waived fees of $68,888 and IFG waived
fees of $18,883.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $56,091, of which AIM retained $33,470 for services provided
by AIM. Prior to May 1, 2004, the Fund had an administrative services agreement
with IFG. Pursuant to such agreement for the period January 1, 2004 through
April 30, 2004, under similar terms, IFG was paid $17,278 for such services, of
which IFG retained $4,097 for services provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $3,052.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II
AIM V.I. TOTAL RETURN FUND
shares of the Fund. AIM Distributors has contractually agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
annual fund operating expenses (excluding items (ii) through (vii) discussed
above) of Series II shares to 1.45% of average daily net assets through April
30, 2006. Pursuant to the Plan, for the period April 30, 2004 (date sales
commenced) through December 31, 2004, the Series II shares paid $10 after AIM
Distributors waived Plan fees of $7.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI, INVESCO and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market funds below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in
affiliated money market funds for the year ended December 31, 2004.
Investments of Daily Available Cash Balances:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------
Premier Portfolio $680,734 $6,957,817 $(6,540,126) $ -- $1,098,425 $8,203 $ --
- -------------------------------------------------------------------------------------------------------
NOTE 4--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $1,835
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31,
2004 and 2003 was as follows:
2004 2003
---------------------------------------------------------
Distributions paid from ordinary income $243,554 $378,364
---------------------------------------------------------
AIM V.I. TOTAL RETURN FUND
Tax Components of Net Assets:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
------------------------------------------------
Undistributed ordinary income $ 181,253
------------------------------------------------
Unrealized appreciation-investments 680,278
------------------------------------------------
Temporary book/tax differences (4,406)
------------------------------------------------
Capital loss carryforward (1,902,196)
------------------------------------------------
Shares of beneficial interest 15,405,733
------------------------------------------------
Total net assets $14,360,662
------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to losses on wash sales and
return of capital distributions.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions.
The Fund utilized $732,141 of capital loss carryforward in the current period
to offset net realized capital gain for federal income tax purposes. The Fund
has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
December 31, 2008 $ 729,218
---------------------------------------------
December 31, 2010 1,172,978
---------------------------------------------
Total capital loss carryforward $1,902,196
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 7--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $11,014,579 and $12,986,909, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,106,127
------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (425,849)
------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 680,278
------------------------------------------------------------------------
Cost of investments for tax purposes is $13,649,943.
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of paydowns on mortgage
backed securities and return of capital distribution, on December 31, 2004,
undistributed net investment income (loss) was increased by $5,373,
undistributed net realized gain (loss) was decreased by $5,140 and shares of
beneficial interest decreased by $233. This reclassification had no effect on
the net assets of the Fund.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(a)/
- ----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
2004 2003
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------
Sold:
Series I 145,373 $ 1,836,849 176,152 $ 2,071,718
- ----------------------------------------------------------------------------------
Series II/(b)/ 807 10,000 -- --
- ----------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I 18,880 243,375 30,464 378,364
- ----------------------------------------------------------------------------------
Series II/(b)/ 14 179 -- --
- ----------------------------------------------------------------------------------
Reacquired:
Series I (290,904) (3,637,833) (325,180) (3,813,243)
- ----------------------------------------------------------------------------------
(125,830) $(1,547,430) (118,564) $(1,363,161)
- ----------------------------------------------------------------------------------
/(a)/There are three entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate the own 95% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM and
or AIM affiliates may make payments to these entities, which are considered
to be related, for providing services to the Fund, AIM and or AIM
affiliates including but not limited to services such as, securities
brokerage, third party record keeping, account servicing and administrative
services. The Trust has no knowledge as to whether all or any portion of
the shares owned of record are also owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
AIM V.I. TOTAL RETURN FUND
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.68 $ 11.11 $ 12.74 $ 13.21 $ 15.58
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18/(a)/ 0.23 0.37 0.19 0.33
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 0.29 1.65 (1.67) (0.38) (0.73)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.47 1.88 (1.30) (0.19) (0.40)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.22) (0.31) (0.33) (0.28) (0.06)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (1.91)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (0.22) (0.31) (0.33) (0.28) (1.97)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.93 $ 12.68 $ 11.11 $ 12.74 $ 13.21
- --------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 3.73% 16.98% (10.22)% (1.47)% (2.17)%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,350 $15,676 $15,052 $23,171 $19,851
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers 1.25%/(c)/ 1.15% 1.15% 1.15% 1.21%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.83%/(c)/ 1.49% 1.34% 1.31% 1.44%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.16%/(a)(c)/ 1.64% 1.86% 2.02% 2.38%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 77% 115% 61% 82% 103%
- --------------------------------------------------------------------------------------------------------------------------
/(a)/Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
(loss) to average net assets excluding the special dividend are $0.16 and
0.99%, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed in
connection with a variable product which if included would reduce total
returns.
/(c)/Ratios are based on average daily net assets of $15,015,979.
SERIES II
-----------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31, 2004
------------------------------------------------------------------------------
Net asset value, beginning of period $12.40
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22/(a)/
------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.51
------------------------------------------------------------------------------
Total from investment operations 0.73
------------------------------------------------------------------------------
Less dividends from net investment income (0.22)
------------------------------------------------------------------------------
Net asset value, end of period $12.91
------------------------------------------------------------------------------
Total return/(b)/ 5.91%
------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11
------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers 1.45%/(c)/
------------------------------------------------------------------------------
Without fee waivers 2.22%/(c)/
------------------------------------------------------------------------------
Ratio of net investment income to average net assets 0.96%/(a)(c)/
------------------------------------------------------------------------------
Portfolio turnover rate/(d)/ 77%
------------------------------------------------------------------------------
/(a)/Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2, 2004.
Net investment income (loss) per share and the ratio of net investment
(loss) to average net assets excluding the special dividend are $0.20 and
0.79%, respectively.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection with
a variable product which if included would reduce total returns.
/(c)/Ratios are annualized and based on average daily net assets of $10,143.
/(d)/Not annualized for periods less than one year.
AIM V.I. TOTAL RETURN FUND
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue
AIM V.I. TOTAL RETURN FUND
NOTE 11--LEGAL PROCEEDINGS (continued)
sharing and directed-brokerage arrangements, investments in securities of other
registered investment companies, contractual plans, issues related to Section
529 college savings plans and procedures for locating lost securityholders.
These regulators include the SEC, the NASD, the Department of Banking for the
State of Connecticut, the Attorney General of the State of West Virginia, the
West Virginia Securities Commission and the Bureau of Securities of the State
of New Jersey. AIM and certain of these other parties also have received more
limited inquiries from the SEC, the NASD, the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division, the U.S. Postal
Inspection Service and the Commodity Futures Trading Commission, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect
to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the Federal and state securities laws; (ii) violation
of various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv)
breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; injunctive
relief; disgorgement of management fees; imposition of a constructive trust;
removal of certain directors and/or employees; various corrective measures
under ERISA; rescission of certain Funds' advisory agreements; interest; and
attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. TOTAL RETURN FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM V.I. Total Return Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Total Return Fund,
formerly known as INVESCO VIF-Total Return Fund, (one of the funds constituting
AIM Variable Insurance Funds, formerly known as INVESCO Variable Investment
Funds, Inc., hereafter referred to as the "Fund"), at December 31, 2004, 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 periods indicated, in conformity with accounting
principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. TOTAL RETURN FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Total Return Fund ("Fund"),
(now known as AIM V.I. Total Return Fund) an investment portfolio of INVESCO
Variable Investment Funds, Inc. ("Company"), (now known as AIM Variable
Insurance Funds), a Delaware statutory trust, was held April 2, 2004. The
meeting was held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
MATTER VOTES FOR
- ------------------------------------------------------------------------------------------------------------------------------
(2) Approval of a new Investment Advisory Agreement with A I M Advisors, Inc..................................... 1,100,011
(3) Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc.. 1,103,377
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware Statutory trust....................... 88,123,016
VOTES
MATTER AGAINST
- ------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc..................................... 9,168
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc.. 9,586
To approve an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware Statutory trust....................... 3,299,467
WITHHELD/
MATTER ABSTENTIONS
- -------------------------------------------------------------------------------------------------------------------------
Approval of a new Investment Advisory Agreement with A I M Advisors, Inc..................................... 17,485
Approval of a new Sub-Advisory Agreement between A I M Advisors, Inc. and INVESCO Institutional (N.A.), Inc.. 13,701
To approve an Agreement and Plan of Reorganization to redomesticate each series portfolio of Company as a new
series portfolio of AIM Variable Insurance Funds, an existing Delaware Statutory trust....................... 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V.I. TOTAL RETURN FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris, Inc.
company) (unified messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, (registered investment company);
including the Boss Group Ltd. (private Annuity and Life Re (Holdings),
investment and management) and Magellan Ltd. (insurance company)
Insurance Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. TOTAL RETURN FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical Group,
Trustee (California) Inc.
Formerly: Associate Justice of the
California Court of Appeals
- ------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- ------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------
Other Officers
- ------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- ------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ------------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- ------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington, D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
SUB-ADVISOR
INVESCO Institutional (N.A.), Inc.
Fixed Income/Stable Value division
The Aegon Center
400 West Market Street, Suite 3300
Louisville, KY 40202-3360
and
INVESCO Institutional (N.A.), Inc.
National Asset Management division
The Aegon Center
400 West Market Street, Suite 2500
Louisville, KY 40202-3349
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 67.85% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 4.09% was derived from U.S. Treasury
Obligations.
AIM V.I. TOTAL RETURN FUND
AIM V.I. UTILITIES FUND
Annual Report to Shareholders . December 31, 2004
EFFECTIVE OCTOBER 15, 2004, INVESCO VIF-UTILITIES FUND
WAS RENAMED AIM V.I. UTILITIES FUND.
AIM V.I. UTILITIES FUND seeks capital growth
and current income.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
12/31/04 AND IS BASED ON TOTAL NET ASSETS.
The fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings are available on the SEC's Web site at
http://www.sec.gov. Copies of the fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549-0102. You can obtain information on the operation of the Public Reference
Room, including information about duplicating fee charges, by calling
1-202-942-8090 or by electronic request at the following e-mail address:
publicinfo@sec.gov. The SEC file numbers for the fund are 811-7452 and 33-57340.
The fund's most recent portfolio holdings, as filed on Form N-Q, have also been
made available to insurance companies issuing variable annuity contracts and
variable life insurance policies ("variable products") that invest in the fund.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, from our Client Services department at 800-410-4246 or on the AIM
Web site, AIMinvestments.com. On the home page, scroll down and click on AIM
Funds Proxy Policy. The information is also available on the Securities and
Exchange Commission's Web site, sec.gov.
Information regarding how the fund voted proxies related to its portfolio
securities during the 12 months ended 6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About Us tab, click on Required Notices and
then click on Proxy Voting Activity. Next, select your fund from the drop-down
menu.
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
CAREFULLY BEFORE INVESTING.
[Your goals. Our solutions.]
- registered trademark -
[AIM Investments Logo]
- registered trademark -
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. UTILITIES FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
It was a very good year for the fund and for the utilities sector as a whole.
The fund's strong results closely tracked those of its peer group, as
represented by the Lipper Utility Fund Index. Further, that index's 23.90%
return was more than double the 10.87% return of the S&P 500 Index, which is
used to represent the U.S. stock market in general.
================================================================================
FUND VS. INDEXES
Total returns, 12/31/03-12/31/04, excluding variable product issuer charges. If
variable product issuer charges were included, returns would be lower.
Series I Shares 23.56%
Series II Shares 23.24
S&P 500 Index (Broad Market Index) 10.87
Lipper Utility Fund Index (Peer Group Index) 23.90
Source: Lipper, Inc.
================================================================================
The fund's outperformance of the S&P 500 Index occurred largely because the
utilities sector outperformed other sectors in that index during the fiscal
year. Stocks in the utilities sector have traditionally been popular with
investors seeking current income because utilities stocks have typically paid
dividends. During 2004, interest rate movements combined with the tax reduction
on dividend income made dividend-paying stocks, including utilities, a more
appealing alternative.
HOW WE INVEST
In pursuit of the fund's objectives of capital growth and current income, we
strive to provide a strong dividend yield while also attempting to hold
volatility in check.
The fund holds both domestic and international utilities stocks, focusing
on three major industries: electric utilities, telecommunications and natural
gas. Exposure is diversified across utilities industries, countries and
capitalization sizes to limit volatility. We concentrate on companies that
demonstrate consistent earning power, hold defensible market positions, and
offer good prospects for both earnings growth and dividend yield.
The fund's investment process begins with sector-specific fundamental
research to identify trends affecting the utility industries and the companies
best positioned to benefit from those trends. Then we use a combination of
quantitative, fundamental and valuation analysis to determine which of those
stocks would be best suited for the portfolio.
During the year, this strategy led us to a diverse set of investment
opportunities for the fund. As a group, stocks in the utility industries and
related industries such as energy tended to outperform the broad market for the
year, and the fund benefited from successful stock selection.
MARKET CONDITIONS AND YOUR FUND
The second half of 2004 offered especially beneficial conditions for the fund
and the utilities sector in general. The economy had been growing for several
quarters. Beginning in late June, the Federal Reserve (the Fed) began raising
its target federal funds rate to forestall the inflation that often accompanies
economic growth.
Increases in interest rates have generally tended to lower the value of
existing bonds, causing their yields--which move inversely to their prices--to
rise. Investors seeking current income often buy utilities stocks as an
alternative to bonds, so dividend yield is an important competitive
consideration. This year, the reduced taxes on dividend income made
dividend-paying equities such as utilities stocks more attractive in comparison
to bonds. The resulting increase in demand tended to elevate the market values
of utilities stocks, further boosting total return.
This trend continued to build through the remainder of 2004, as the Fed
raised its target federal funds rate four more times, reaching 2.25% by the end
of the year. Interestingly, though short-term interest rates rose, rates for
long-term bonds actually declined. We concluded that this indicated the bond
market was pricing in the expectation of more muted economic growth and slower
inflation over the longer term. This effect operated to the further advantage of
utilities stocks, as their dividend yields compared more favorably with the
lower
================================================================================
PORTFOLIO COMPOSITION
By sector
[PIE CHART]
Utilities 74.2%
Telecommunication 12.5%
Energy 6.6%
Money Market Funds plus
Other Assets Less Liabilities 4.3%
Materials 2.4%
TOTAL NET ASSETS $160.2 million
TOTAL NUMBER OF HOLDINGS* 46
================================================================================
================================================================================
TOP 10 EQUITY HOLDINGS*
1. TXU Corp. 4.9%
2. Exelon Corp. 4.6
3. Entergy Corp. 4.2
4. Dominion Resources, Inc. 4.0
5. Questar Corp. 4.0
6. Pacific Gas & Electric Co. 3.9
7. FirstEnergy Corp. 3.7
8. Williams Cos., Inc. (The) 3.6
9. FPL Group, Inc. 3.5
10. Kinder Morgan, Inc. 3.0
================================================================================
================================================================================
TOP INDUSTRIES*
1. Electric Utilities 46.7%
2. Multi-Utilities & Unregulated Power 21.3
3. Integrated Telecommunication Services 10.4
4. Oil & Gas Refining, Marketing & Transportation 6.6
5. Gas Utilities 4.7
6. Diversified Metals & Mining 2.4
7. Wireless Telecommunication Services 2.1
8. Water Utilities 1.5
================================================================================
*Excluding money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
2
AIM V.I. UTILITIES FUND
market estimate of bond yields over the long term.
Electric utilities remained the largest industry weighting in the fund,
though we reduced that weight somewhat over the course of the year. Regulated
electric utilities were especially attractive, as their dividends tend to be
higher on average than those of unregulated utilities. However, unregulated
utilities typically offer higher earnings growth potential and continued to have
a place in the portfolio.
Indeed, the year's top contributor to the fund was Texas-based power
producer and marketer TXU Corp., which operates in both regulated and
unregulated environments. TXU gained market share as Texas accomplished a
successful deregulation of the power industry, and its stock appreciated
dramatically during 2004. TXU's management restructured the balance sheet to
reduce interest payments and increase profits, and we judged its fundamentals to
be sound. In our opinion, the company could achieve cost reductions which could
fuel earnings growth.
Also among the holdings that made the largest contributions to fund
performance during the year was utility holding company Exelon, a good example
of a successful regulated utility. We considered the company well run, and its
dividend yield of nearly 4% made it an attractive holding.
As economic and market forces shifted during the year, we moved to take
advantage of opportunities and minimize difficulties. We increased exposure to
oil and gas refining and marketing, which benefited from the year's notable
increase in energy prices.
We reduced the fund's weighting in telecommunications because we were
dissatisfied with the fundamentals of companies in the sector. Many of them have
significant debt loads, and the sector as a whole lacks pricing power because of
the significant inroads made by the wireless telecommunications industry. Some
customers have begun using only cell phones, decreasing demand for the land-line
phones that are the backbone of many companies.
It was a very good year
for the fund and for
the utilities sector
as a whole.
The year's largest detractor from fund performance--though the loss was
only a fraction of one percent--was BellSouth, which had been among our largest
telecommunication services holdings. After BellSouth became involved with
another "Baby Bell" in the purchase of the former AT&T Wireless division,
analysts felt the buyers overpaid for the acquisition. BellSouth's stock
suffered, and we exited our position.
The fund's international utilities--about 13% of fund assets--performed
well on the whole, especially because, as the dollar weakened over the year,
exchange rates magnified the dollar value of their returns.
IN CLOSING
We were very pleased with the fund's performance during 2004. Of course, we
recognize that funds' prospects shift with changing economic conditions, and
that there are likely to be periods during which the fund underperforms the
broad market. For this reason, we continue to recommend that investors keep
their assets diversified among various classes of securities. As always, we
thank you for your continued investment in AIM V.I. Utilities Fund.
The views and opinions expressed in Management's Discussion of Fund Performance
are those of AIM Advisors, Inc. These views and opinions are subject to change
at any time based on factors such as market and economic conditions. These views
and opinions may not be relied upon as investment advice or recommendations, or
as an offer for a particular security. The information is not a complete
analysis of every aspect of any market, country, industry, security or the fund.
Statements of fact are from sources considered reliable, but AIM Advisors, Inc.
makes no representation or warranty as to their completeness or accuracy.
Although historical performance is no guarantee of future results, these
insights may help you understand our investment management philosophy.
[SEGNER PHOTO]
JOHN S. SEGNER, senior portfolio manager, is lead manager of AIM V.I. Utilities
Fund. He has been in the investment business since 1980 and joined INVESCO in
1997. He holds a B.S. from the University of Alabama and an M.B.A. with a
concentration in finance from The University of Texas-Austin.
[RIGHT ARROW GRAPHIC]
For further information on your fund, its expenses and its long-term
performance, please turn the page.
PRINCIPAL RISKS OF INVESTING IN THE FUND
International investing presents certain risks not associated with investing
solely in the United States. These include risks relating to 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 holdings, differences in accounting,
political risks and the lesser degree of public information required to be
provided by non-U.S. companies. The fund may invest up to 25% of its assets in
the securities of non-U.S. issuers. Securities of Canadian issuers and American
Depositary Receipts are not subject to this 25% limitation.
Investing in a single-sector or single-region mutual fund involves greater
risk and potential reward than investing in a more diversified fund.
Investing in small and mid-size companies involves risks not associated
with investing in more established companies, including business risk,
significant stock price fluctuations and illiquidity.
Portfolio turnover is greater than that of most funds, which may affect
performance.
3
AIM V.I. UTILITIES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE
As a shareholder of the fund, you incur ongoing costs, including management
fees, distribution and/or service fees (12b-l), and other fund expenses. This
example is intended to help you understand your ongoing costs (in dollars) of
investing in the fund and to compare these costs with ongoing costs of investing
in other mutual funds. The example is based on an investment of $1,000 invested
at the beginning of the period and held for the entire period, July 1, 2004 -
December 31, 2004.
The actual and hypothetical expenses in the examples below do not represent
the effect of any fees or other expenses assessed in connection with a variable
product; if they did, the expenses shown would be higher while the ending
account values shown would be lower.
ACTUAL EXPENSES
The table below provides information about actual account values and actual
expenses. You may use the information in this table, together with the amount
you invested, to estimate the expenses that you paid over the period. Simply
divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Actual Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The table below also provides information about hypothetical account values and
hypothetical expenses based on the fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the fund's actual
return. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the fund and
other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only. Therefore, the hypothetical information is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
================================================================================
HYPOTHETICAL
ACTUAL (5% annual return before expenses)
---------------------------- ----------------------------------
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (7/01/04) (12/31/04)/1/ Period/2/ (12/31/04) Period/2/
- --------- ----------------- -------------- ----------- -------------- -----------
Series I $1,000.00 $1,203.50 $5.37 $1,020.26 $4.93
Series II 1,000.00 1,201.40 6.75 1,019.00 6.19
/1/ The actual ending account value is based on the actual total return of the
fund for the period July 1, 2004, to December 31, 2004, after actual
expenses and will differ from the hypothetical ending account value which
is based on the fund's expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004, to December 31, 2004, was 20.35% and 20.14% for Series
I and Series II shares, respectively.
/2/ Expenses are equal to the fund's annualized expense ratio (0.97% and 1.22%
for Series I and Series II shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the
one-half year period).
================================================================================
4
AIM V.I. UTILITIES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Past performance cannot guarantee comparable future results.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the fund's early years before reinvested
distributions and compounding create the potential for the original investment
to grow to very large numbers. Had the chart used a linear scale along its
vertical axis, you would not be able to see as clearly the movements in the
value of the fund and the indexes during the fund's early years. We use a
logarithmic scale in financial reports of funds that have more than five years
of performance history.
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
As of 12/31/04
Series I Shares
10 Years 6.44%
5 Years -3.82
1 Year 23.56
Series II Shares
10 Years 6.18%
5 Years -4.07
1 Year 23.24
================================================================================
Returns since the inception date of Series II shares are historical. All
other returns are the blended returns of the historical performance of the
fund's Series II shares since their inception and the restated historical
performance of the fund's Series I shares (for periods prior to inception of the
Series II shares) adjusted to reflect the higher Rule 12b-1 fees applicable to
the Series II shares. The inception date of the fund's Series I shares is
12/30/94. The inception date of the fund's Series II shares is 4/30/04. The
Series I and Series II shares invest in the same portfolio of securities and
will have substantially similar performance, except to the extent that expenses
borne by each class differ.
================================================================================
RESULTS OF A $10,000 INVESTMENT
12/30/94-12/31/04 Index results from 12/31/94
[MOUNTAIN CHART]
AIM V.I. Utilities S&P 500 Lipper Utility
Date Fund-Series I Index Fund Index
- -------- ------------------ ------- --------------
12/30/94 $10000 $10000 $10000
3/95 10090 10973 10447
6/95 10110 12019 11131
9/95 10180 12973 11900
12/95 10909 13753 12711
3/96 11050 14491 12662
6/96 11815 15141 13122
9/96 11634 15609 12826
12/96 12302 16909 13897
3/97 11942 17363 13761
6/97 13095 20392 14984
9/97 13754 21919 15739
12/97 15182 22548 17470
3/98 17185 25691 19202
6/98 17059 26544 18906
9/98 16258 23910 18712
12/98 19051 28997 20684
3/99 19480 30441 19914
6/99 21270 32583 22085
9/99 20436 30554 21335
12/99 22699 35096 23690
3/00 25925 35900 25372
6/00 23672 34946 24078
9/00 25166 34608 26485
12/00 23895 31902 25721
3/01 21999 28122 24024
6/01 19955 29767 23249
9/01 15643 25399 20392
12/01 16147 28113 20231
3/02 15343 28191 19792
6/02 13681 24416 17233
9/02 11822 20200 14295
12/02 12864 21902 15638
3/03 12289 21212 14983
6/03 14076 24476 17562
9/03 13938 25124 17339
12/03 15113 28181 19012
3/04 15498 28658 19818
6/04 15515 29151 19817
9/04 16557 28606 20981
12/04 $18672 $31245 $23555
Source: Lipper, Inc.
================================================================================
The performance data quoted represent past performance and cannot guarantee
comparable future results; current performance may be lower or higher. Please
contact your variable product issuer or financial advisor for the most recent
month-end variable product performance. Performance figures reflect fund
expenses, reinvested distributions and changes in net asset value. Investment
return and principal value will fluctuate so that you may have a gain or loss
when you sell shares.
AIM V.I, Utilities Fund, a series portfolio of AIM Variable Insurance
Funds, is currently offered through insurance companies issuing variable
products. You cannot purchase shares of the fund directly. Performance figures
given represent the fund and are not intended to reflect actual variable product
values. They do not reflect sales charges, expenses and fees assessed in
connection with a variable product. Sales charges, expenses and fees, which are
determined by the variable product issuers, will vary and will lower the total
return. *
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Standard & Poor's Composite Index of 500 Stocks (the S&P 500
- --registered trademark-- Index) is an index of common stocks frequently used as
a general measure of U.S. stock market performance.
The unmanaged Lipper Utility Fund Index represents an average of the 30
largest utility funds tracked by Lipper, Inc., an independent mutual fund
performance monitor.
The fund is not managed to track the performance of any particular index,
including the indexes defined here, and consequently, the performance of the
fund may deviate significantly from the performance of the indexes.
A direct investment cannot be made in an index. Unless otherwise indicated,
index results include reinvested dividends, and they do not reflect sales
charges. Performance of an index of funds reflects fund expenses; performance of
a market index does not.
OTHER INFORMATION
The returns shown in the Management's Discussion of Fund Performance are based
on net asset values calculated for shareholder transactions. Generally accepted
accounting principles require adjustments to be made to the net assets of the
fund at period end for financial reporting purposes, and as such, the net asset
values for shareholder transactions and the returns based on those net asset
values may differ from the net asset values and returns reported in the
Financial Highlights.
Industry classifications used in this report are generally according to the
Global Industry Classification Standard, which was developed by and is the
exclusive property and a service mark of Morgan Stanley Capital International
Inc. and Standard & Poor's.
*Per N4SD requirements, the most recent month-end performance data at the fund
level, excluding variable product charges, is available on this AIM automated
information line, 866-702-4402. As mentioned above, for the most recent
month-end performance including variable product charges, please contact your
variable product issuer or financial consultant.
5
SCHEDULE OF INVESTMENTS
December 31, 2004
MARKET
SHARES VALUE
------------------------------------------------------
DOMESTIC COMMON STOCKS-82.21%
DIVERSIFIED METALS & MINING-2.38%
Peabody Energy Corp. 47,000 $ 3,802,770
------------------------------------------------------
ELECTRIC UTILITIES-40.73%
Ameren Corp. 80,000 4,011,200
------------------------------------------------------
American Electric Power Co., Inc. 90,000 3,090,600
------------------------------------------------------
CenterPoint Energy, Inc. 150,000 1,695,000
------------------------------------------------------
Cinergy Corp. 72,000 2,997,360
------------------------------------------------------
DTE Energy Co. 36,000 1,552,680
------------------------------------------------------
Edison International 135,000 4,324,050
------------------------------------------------------
Entergy Corp. 100,000 6,759,000
------------------------------------------------------
Exelon Corp. 168,024 7,404,818
------------------------------------------------------
FirstEnergy Corp. 150,000 5,926,500
------------------------------------------------------
FPL Group, Inc. 75,000 5,606,250
------------------------------------------------------
OGE Energy Corp. 70,000 1,855,700
------------------------------------------------------
Pacific Gas & Electric Co./(a)/ 190,000 6,323,200
------------------------------------------------------
PPL Corp. 87,000 4,635,360
------------------------------------------------------
TXU Corp. 122,000 7,876,320
------------------------------------------------------
Wisconsin Energy Corp. 35,000 1,179,850
------------------------------------------------------
65,237,888
------------------------------------------------------
GAS UTILITIES-3.42%
KeySpan Corp. 100,000 3,945,000
------------------------------------------------------
Peoples Energy Corp. 35,000 1,538,250
------------------------------------------------------
5,483,250
------------------------------------------------------
INTEGRATED TELECOMMUNICATIONS
SERVICES-9.03%
Citizens Communications Co. 275,000 3,792,250
------------------------------------------------------
SBC Communications Inc. 115,006 2,963,704
------------------------------------------------------
Sprint Corp. 170,000 4,224,500
------------------------------------------------------
Verizon Communications Inc. 86,019 3,484,630
------------------------------------------------------
14,465,084
------------------------------------------------------
MULTI-UTILITIES & UNREGULATED
POWER-18.53%
Calpine Corp./(a)/ 865,000 3,408,100
------------------------------------------------------
Dominion Resources, Inc. 95,000 6,435,300
------------------------------------------------------
Equitable Resources, Inc. 70,000 4,246,200
------------------------------------------------------
ONEOK, Inc. 100,000 2,842,000
------------------------------------------------------
Questar Corp. 125,000 6,370,000
------------------------------------------------------
SCANA Corp. 50,000 1,970,000
------------------------------------------------------
Sempra Energy 120,000 4,401,600
------------------------------------------------------
29,673,200
------------------------------------------------------
MARKET
SHARES VALUE
---------------------------------------------------------------------------
OIL & GAS REFINING MARKETING &
TRANSPORTATION-6.58%
Kinder Morgan, Inc. 65,000 $ 4,753,450
---------------------------------------------------------------------------
Williams Cos., Inc. (The) 355,000 5,782,950
---------------------------------------------------------------------------
10,536,400
---------------------------------------------------------------------------
WATER UTILITIES-1.54%
Aqua America Inc. 100,000 2,459,000
---------------------------------------------------------------------------
Total Domestic Common Stocks
(Cost $108,227,862) 131,657,592
---------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-13.30%
FRANCE-1.48%
Veolia Environnement
(Multi-Utilities & Unregulated Power)/(b)/ 65,400 2,363,122
---------------------------------------------------------------------------
GERMANY-1.99%
E.ON A.G. (Electric Utilities)/(b)/ 35,170 3,190,407
---------------------------------------------------------------------------
ITALY-3.39%
Enel S.p.A. (Electric Utilities)/(b)/ 310,000 3,041,186
---------------------------------------------------------------------------
Telecom Italia S.p.A.
(Integrated Telecommunications Services)/(b)/ 220,222 712,140
---------------------------------------------------------------------------
Terna S.p.A. (Electric Utilities) 587,400 1,681,265
---------------------------------------------------------------------------
5,434,591
---------------------------------------------------------------------------
SPAIN-1.83%
Endesa, S.A. (Electric Utilities)/(b)/ 63,562 1,484,312
---------------------------------------------------------------------------
Telefonica, S.A.
(Integrated Telecommunications Services)/(b)/ 76,705 1,439,620
---------------------------------------------------------------------------
2,923,932
---------------------------------------------------------------------------
UNITED KINGDOM-4.61%
Centrica PLC (Gas Utilities)/(b)/ 443,250 2,005,758
---------------------------------------------------------------------------
National Grid Transco PLC
(Multi-Utilities & Unregulated Power)/(b)/ 218,942 2,083,234
---------------------------------------------------------------------------
Vodafone Group PLC
(Wireless Telecommunication Services)/(b)/ 803,526 2,184,489
---------------------------------------------------------------------------
Vodafone Group PLC-ADR
(Wireless Telecommunication Services) 40,600 1,111,628
---------------------------------------------------------------------------
7,385,109
---------------------------------------------------------------------------
Total Foreign Stocks & Other Equity Interests
(Cost $16,932,018) 21,297,161
---------------------------------------------------------------------------
PRINCIPAL
AMOUNT
BONDS & NOTES-0.19%
ELECTRIC UTILITIES-0.13%
AmerenEnergy Generating Co.-Series C, Sr. Unsec.
Global Notes, 7.75%, 11/01/05/(c)/ $100,000 103,883
---------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec. Notes,
7.13%, 12/15/05/(c)/ 100,000 103,548
---------------------------------------------------------------------------
207,431
---------------------------------------------------------------------------
AIM V.I. UTILITIES FUND
PRINCIPAL MARKET
AMOUNT VALUE
-------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATIONS
SERVICES-0.06%
British Telecommunications PLC (United Kingdom),
Global Notes, 7.88%, 12/15/05/(c)/ $ 100,000 $ 104,316
-------------------------------------------------------------------------
Total Bonds & Notes
(Cost $312,814) 311,747
-------------------------------------------------------------------------
SHARES
MONEY MARKET FUNDS-4.34%
Premier Portfolio (Cost $6,951,654)/(d)(e)/ 6,951,654 6,951,654
-------------------------------------------------------------------------
TOTAL INVESTMENTS-100.04% (Cost $132,424,348) 160,218,154
-------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.04%) (62,531)
-------------------------------------------------------------------------
NET ASSETS-100.00% $160,155,623
-------------------------------------------------------------------------
Investment Abbreviations:
ADR-American Depositary Receipt
Sr.-Senior
Unsec.-Unsecured
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at December 31, 2004 was
$18,504,268, which represented 11.55% of the Fund's Total Investments. See
Note 1A.
(c) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at December
31, 2004 was $311,747, which represented 0.19% of the Fund's Total
Investments. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) Effective October 15, 2004, the INVESCO Treasurer's Money Market Reserve
Fund was renamed Premier Portfolio. Effective February 25, 2005, shares of
Premier Portfolio owned by the Fund will be designated as Investor Class
shares.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. UTILITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS:
Investments, at market value (cost $125,472,694) $153,266,500
- -------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $6,951,654) 6,951,654
- -------------------------------------------------------------------------------------
Total investments (cost $132,424,348) 160,218,154
- -------------------------------------------------------------------------------------
Foreign currencies, at market value (cost $739) 737
- -------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 147,170
- -------------------------------------------------------------------------------------
Dividends and interest 349,979
- -------------------------------------------------------------------------------------
Investments matured (Note 8) 32,358
- -------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 52,882
- -------------------------------------------------------------------------------------
Total assets 160,801,280
- -------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Fund shares reacquired 372,288
- -------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 55,067
- -------------------------------------------------------------------------------------
Accrued administrative services fees 180,981
- -------------------------------------------------------------------------------------
Accrued distribution fees--Series II 346
- -------------------------------------------------------------------------------------
Accrued transfer agent fees 3,484
- -------------------------------------------------------------------------------------
Accrued operating expenses 33,491
- -------------------------------------------------------------------------------------
Total liabilities 645,657
- -------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $160,155,623
- -------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $140,450,493
- -------------------------------------------------------------------------------------
Undistributed net investment income 2,579,006
- -------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
foreign currencies (10,251,899)
- -------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign currencies 27,378,023
- -------------------------------------------------------------------------------------
$160,155,623
- -------------------------------------------------------------------------------------
NET ASSETS:
Series I $159,553,811
- -------------------------------------------------------------------------------------
Series II $ 601,812
- -------------------------------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 10,222,926
- -------------------------------------------------------------------------------------
Series II 38,642
- -------------------------------------------------------------------------------------
Series I:
Net asset value per share $ 15.61
- -------------------------------------------------------------------------------------
Series II:
Net asset value per share $ 15.57
- -------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $109,823) $ 4,079,900
-----------------------------------------------------------------------
Dividends from affiliated money market funds 97,854
-----------------------------------------------------------------------
Interest 11,530
-----------------------------------------------------------------------
Total investment income 4,189,284
-----------------------------------------------------------------------
EXPENSES:
Advisory fees 614,369
-----------------------------------------------------------------------
Administrative services fees 277,440
-----------------------------------------------------------------------
Custodian fees 23,367
-----------------------------------------------------------------------
Distribution fees-Series II 848
-----------------------------------------------------------------------
Transfer agent fees 14,046
-----------------------------------------------------------------------
Trustees' fees and retirement benefits 13,153
-----------------------------------------------------------------------
Other 93,456
-----------------------------------------------------------------------
Total expenses 1,036,679
-----------------------------------------------------------------------
Less:Fees waived and expense offset arrangement (4,576)
-----------------------------------------------------------------------
Net expenses 1,032,103
-----------------------------------------------------------------------
Net investment income 3,157,181
-----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 4,075,252
-----------------------------------------------------------------------
Foreign currencies 61,725
-----------------------------------------------------------------------
4,136,977
-----------------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 19,372,158
-----------------------------------------------------------------------
Foreign currencies 1,930
-----------------------------------------------------------------------
19,374,088
-----------------------------------------------------------------------
Net gain from investment securities and foreign currencies 23,511,065
-----------------------------------------------------------------------
Net increase in net assets resulting from operations $26,668,246
-----------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. UTILITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
2004
- ------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,157,181
- ------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies and foreign currency contracts 4,136,977
- ------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 19,374,088
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,668,246
- ------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from net investment income-Series I (1,790,572)
- ------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I 72,272,573
- ------------------------------------------------------------------------------------------------------------------------
Series II 494,954
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 72,767,527
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 97,645,201
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 62,510,422
- ------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $2,579,006 and $1,194,003, respectively) $160,155,623
- ------------------------------------------------------------------------------------------------------------------------
2003
- ----------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,222,923
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies and foreign currency contracts 142,852
- ----------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and foreign currencies 6,184,975
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 7,550,750
- ----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from net investment income-Series I (670,647)
- ----------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Series I 24,426,328
- ----------------------------------------------------------------------------------------------------------------------
Series II --
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 24,426,328
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets 31,306,431
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 31,203,991
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $2,579,006 and $1,194,003, respectively) $62,510,422
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements.
AIM V.I. UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Utilities Fund, formerly INVESCO VIF-Utilities Fund, (the "Fund") is a
series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a
Delaware statutory trust registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end series management investment
company consisting of twenty-eight separate portfolios. The Fund currently
offers two classes of shares, Series I and Series II, both of which are offered
to insurance company separate accounts funding variable annuity contracts and
variable life insurance policies ("variable products"). Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. Current Securities and Exchange Commission ("SEC")
guidance, however, requires participating insurance companies offering separate
accounts to vote shares proportionally in accordance with the instructions of
the contract owners whose investments are funded by shares of each portfolio or
class. The assets, liabilities and operations of each portfolio are accounted
for separately. Information presented in these financial statements pertains
only to the Fund. On April 30, 2004, the Fund was restructured from a separate
series of INVESCO Variable Investment Funds, Inc. to a new series portfolio of
the Trust.
The Fund's investment objective is to seek capital growth and current income.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or lacking
any sales on a particular day, the security is valued at the closing bid
price on that day. Each security traded in the over-the-counter market (but
not securities reported on the NASDAQ National Market System) is valued on
the basis of prices furnished by independent pricing services or market
makers. Each security reported on the NASDAQ National Market System is
valued at the NASDAQ Official Closing Price ("NOCP") as of the close of the
customary trading session on the valuation date or absent a NOCP, at the
closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued by
an independent source at the mean between the last bid and ask prices. For
purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated quotes
provided by the pricing service may be determined without exclusive reliance
on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in the
case of debt obligations, the mean between the last bid and asked prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the close
of the NYSE. Generally, trading in foreign securities is substantially
completed each day at various times prior to the close of the NYSE. The
values of such securities used in computing the net asset value of the
Fund's shares are determined as of the close of the respective markets.
Events affecting the values of such foreign securities may occur between the
times at which the particular foreign market closes and the close of the
customary trading session of the NYSE which would not ordinarily be
reflected in the computation of the Fund's net asset value. If the event is
likely to have affected the closing price of the security, the security will
be valued at fair value in good faith using procedures approved by the Board
of Trustees. Adjustments to closing prices to reflect fair value may also be
based on a screening process of an independent pricing service to indicate
the degree of certainty, based on historical data, that the closing price in
the principal market where a foreign security trades is not the current
market value as of the close of the NYSE. Foreign securities meeting the
approved degree of certainty that the price is not reflective of current
market value will be priced at the indication of fair value from the
independent pricing service. Multiple factors may be considered by the
independent pricing service in determining adjustments to reflect fair value
and may include information relating to sector indices, ADRs, domestic and
foreign index futures and exchange-traded funds.
AIM V.I. UTILITIES FUND
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by the
Board of Trustees. Issuer specific events, market trends, bid/ask quotes of
brokers and information providers and other market data may be reviewed in
the course of making a good faith determination of a security's fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date. Bond premiums and
discounts are amortized and/or accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
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. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in some
repurchase agreements, pursuant to an exemptive order from the Securities
and Exchange Commission, are through participation with other mutual funds,
private accounts and certain non-registered investment companies managed by
the investment advisor or its affiliates ("Joint repurchase agreements"). If
the seller of a repurchase agreement fails to repurchase the security in
accordance with the terms of the agreement, the Fund might incur expenses in
enforcing its rights, and could experience losses, including a decline in
the value of the underlying security and loss of income.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollar amounts at date of valuation.
Purchases and sales of portfolio securities (net of foreign taxes withheld
on disposition) and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for the portion of the
results of operations resulting from changes in foreign exchange rates on
investments and the fluctuations arising from changes in market prices of
securities held. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments (net of estimated
foreign tax withholding) are included with the net realized and unrealized
gain or loss from investments in the Statement of Operations. Reported net
realized foreign currency gains or losses arise from, (i) sales of foreign
currencies, (ii) currency gains or losses realized between the trade and
settlement dates on securities transactions, and (iii) the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign currency gains and losses
arise from changes in the fair values of assets and liabilities, other than
investments in securities at fiscal period end, resulting from changes in
exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a future
date. The Fund may enter into a foreign currency contract to attempt to
minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency contract
for the purchase or sale of a security denominated in a foreign currency in
order to "lock in" the U.S. dollar price of that security. The Fund could be
exposed to risk if counterparties to the contracts are unable to meet the
terms of their contracts or if the value of the foreign currency changes
unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to based on the annual rate of 0.60% of the
Fund's average daily net assets. For the period May 1, 2004 through December
31, 2004, the Fund paid advisory fees to AIM of $479,175. Prior to May 1, 2004,
the Trust had an investment advisory agreement with INVESCO Funds Group, Inc.
("IFG"). For the period January 1, 2004 through April 30, 2004, the Fund paid
advisory fees under similar terms to IFG of $135,194. AIM has contractually
agreed to waive advisory fees and/or reimburse expenses to the extent necessary
to limit total annual operating expenses (excluding certain items discussed
below) of each Series to 1.30% of average daily net assets, through April 30,
2006. Prior to May 1, 2004, AIM had agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit total annual operating
expenses (excluding certain items discussed below) of each Series to 1.15% of
average daily net assets. In determining the advisor's obligation to waive
advisory fees and/or reimburse expenses, the following expenses are not taken
into account, and could cause the total annual fund operating
AIM V.I. UTILITIES FUND
expenses to exceed the limit stated above: (i) Rule 12b-1 plan fees, if any;
(ii) interest; (iii) taxes; (iv) dividend expense on short sales; (v)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
Board of Trustees; (vi) expenses related to a merger or reorganization, as
approved by the Fund's Board of Trustees; and (vii) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits
are in the form of credits that the Fund receives from banks where the Fund or
its transfer agent has deposit accounts in which it holds uninvested cash.
Those credits are used to pay certain expenses incurred by the Fund. AIM did
not waive fees and/or reimburse expenses during the period under this expense
limitation. Further, AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from the affiliated
money market funds on investments by the Fund in such affiliated money market
funds. Voluntary fee waivers or reimbursements may be modified or discontinued
at any time upon consultation with the Board of Trustees without further notice
to investors. For the year ended December 31, 2004, AIM waived fees of $3,095.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the Fund and to reimburse AIM for
administrative services fees paid to insurance companies that have agreed to
provide administrative services to the participants of separate accounts.
Pursuant to such agreement for the period May 1, 2004 through December 31,
2004, AIM was paid $214,424, of which AIM retained $33,470 for services
provided by AIM. Prior to May 1, 2004, the Fund had an administrative services
agreement with IFG. For the period January 1, 2004 through April 30, 2004,
under similar terms, IFG was paid $63,016 for such services, of which IFG
retained $6,686 for services provided by IFG.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
December 31, 2004, the Fund paid AISI $14,046.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Fund. The Trust has adopted a plan pursuant to Rule 12b-1 under the 1940 Act
with respect to the Fund's Series II shares (the "Plan"). The Fund, pursuant to
the Plan, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Series II shares. Of this amount, up to
0.25% of the average daily net assets of the Series II shares may be paid to
insurance companies who furnish continuing personal shareholder services to
customers who purchase and own Series II shares of the Fund. AIM Distributors
has contractually agreed to reimburse the Fund's Rule 12b-1 distribution plan
fees to the extent necessary to limit total annual fund operating expenses
(excluding items (ii) through (vii) discussed above) of Series II shares to
1.45% of average daily net assets, through April 30, 2006. AIM Distributors did
not reimburse fees during the period under this expense limitation. Pursuant to
the Plan, for the period April 30, 2004 (date sales commenced) through December
31, 2004, the Series II shares paid $848.
Certain officers and trustees of the Trust are also officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the SEC and approved
procedures by the Board of Trustees, to invest daily available cash balances in
affiliated money market funds. The Fund and the money market fund below have
the same investment advisor and therefore, are considered to be affiliated. The
table below shows the transactions in and earnings from investments in an
affiliated money market fund for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------
Premier Portfolio $3,151,179 $89,764,418 $(85,963,943) $ -- $6,951,654 $97,854 $ --
- ---------------------------------------------------------------------------------------------------------
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of custodian credits which result
from periodic overnight cash balances at the custodian. For the year ended
December 31, 2004, the Fund received credits in custodian fees of $1,481 under
an expense offset arrangement, which resulted in a reduction of the Fund's
total expenses of $1,481.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall
be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended December 31, 2004, the Fund paid legal fees of $1,963
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to
the Independent Trustees. A member of that firm is a Trustee of the Trust.
AIM V.I. UTILITIES FUND
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate
the custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31,
2004 and 2003 was as follows:
2004 2003
-----------------------------------------------------------
Distributions paid from ordinary income $1,790,572 $670,647
-----------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
2004
--------------------------------------------------
Undistributed ordinary income $ 2,634,305
--------------------------------------------------
Unrealized appreciation--investments 26,402,725
--------------------------------------------------
Temporary book/tax differences (49,708)
--------------------------------------------------
Capital loss carryforward (9,282,192)
--------------------------------------------------
Shares of beneficial interest 140,450,493
--------------------------------------------------
Total net assets $160,155,623
--------------------------------------------------
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales, the treatment of corporate actions and the
treatment of defaulted bonds. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation on foreign
currencies of $3,566.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
December 31, 2004 to utilizing $5,603,621 of capital loss carryforward in the
fiscal year ended December 31, 2005.
The Fund utilized $1,198,507 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2004 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
December 31, 2008 $1,361,470
---------------------------------------------
December 31, 2009 7,920,722
---------------------------------------------
Total capital loss carryforward $9,282,192
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
AIM V.I. UTILITIES FUND
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $100,455,986 and $43,988,943, respectively.
Receivable for investments matured represents the estimated proceeds to the
fund by Candescent Technologies Corp. which is in default with respect to the
principal payments on $20,233,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00%, which were due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees. Unrealized appreciation (depreciation) at December 31, 2004
was $(419,349).
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
-------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $27,005,259
-------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (186,751)
-------------------------------------------------------------------------
Net unrealized appreciation of investment securities $26,818,508
-------------------------------------------------------------------------
Cost of investments for tax purposes is $133,399,646.
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and redomestication expenses, on December 31, 2004, undistributed
net investment income was increased by $67,699, undistributed net realized gain
(loss) was decreased by $61,722 and shares of beneficial interest decreased by
$5,977. Further, as a result of tax deferrals acquired in the reorganization of
AIM V.I. Global Utilities Fund into the Fund, undistributed net investment
income was decreased by $49,305, undistributed net realized gain (loss) was
decreased by $5,754,529 and shares of beneficial interest was increased by
$5,803,834. This reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING/(A)/
- ------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2004 2003
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
Sold:
Series I 7,260,883 $ 98,809,827 3,270,616 $ 38,622,032
- ------------------------------------------------------------------------------------------------
Series II/(b)/ 9,123 123,917 -- --
- ------------------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Series I 141,547 1,790,572 53,910 670,647
- ------------------------------------------------------------------------------------------------
Issued in connection with acquisitions:/(c)/
Series I 1,651,306 20,891,460 -- --
- ------------------------------------------------------------------------------------------------
Series II/(b)/ 35,261 445,966 -- --
- ------------------------------------------------------------------------------------------------
Reacquired:
Series I (3,656,840) (49,219,286) (1,294,779) (14,866,351)
- ------------------------------------------------------------------------------------------------
Series II/(b)/ (5,742) (74,929) -- --
- ------------------------------------------------------------------------------------------------
5,435,538 $ 72,767,527 2,029,747 $ 24,426,328
- ------------------------------------------------------------------------------------------------
/(a)/There are five entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 80% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or
any portion of the shares owned of record by these shareholders are also
owned beneficially.
/(b)/Series II shares commenced sales on April 30, 2004.
/(c)/As of the opening of business on April 30, 2004, the Fund acquired all of
the nets assets of AIM V.I. Global Utilities Fund pursuant to a plan of
reorganization approved by the Trustees of the Fund on December 9, 2003 and
AIM V.I. Global Utilities Fund shareholders on April 2, 2004. The
acquisition was accomplished by a tax-free exchange of 1,686,567 shares of
the Fund for 1,960,982 shares of AIM V.I. Global Utilities Fund outstanding
as of the close of business on April 29, 2004. AIM V.I. Global Utilities
Fund's net assets at that date of $21,337,426, including $1,651,275 of
unrealized appreciation, were combined with those of the Fund. The
aggregate net assets of the Fund immediately before the acquisition were
$69,390,372.
AIM V.I. UTILITIES FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
SERIES I
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.95 $ 11.16 $ 14.08 $ 21.06 $ 20.97
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42/(a)/ 0.33/(a)/ 0.19 0.00 0.17
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.57 1.60 (3.05) (6.83) 0.87
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.99 1.93 (2.86) (6.83) 1.04
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.33) (0.14) (0.06) (0.07) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.08) (0.92)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.33) (0.14) (0.06) (0.15) (0.95)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.61 $ 12.95 $ 11.16 $ 14.08 $ 21.06
- ---------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 23.65% 17.38% (20.32)% (32.41)% 5.28%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $159,554 $62,510 $31,204 $20,947 $12,300
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.01%/(c)/ 1.08% 1.15% 1.15% 1.22%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 3.09%/(c)/ 2.84% 2.59% 1.13% 0.94%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 52% 58% 102% 33% 50%
- ---------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
/(c)/Ratios are based on average daily net assets of $102,055,423.
SERIES II
----------------------
APRIL 30, 2004
(DATE SALES COMMENCED)
TO
DECEMBER 31, 2004
----------------------
Net asset value, beginning of period $12.63
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.26/(a)/
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.68
- --------------------------------------------------------------------------------
Total from investment operations 2.94
- --------------------------------------------------------------------------------
Net asset value, end of period $15.57
- --------------------------------------------------------------------------------
Total return/(b)/ 23.28%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 602
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.28%/(c)/
- --------------------------------------------------------------------------------
Ratio of net investment income to average net assets 2.82%/(c)/
- --------------------------------------------------------------------------------
Portfolio turnover rate/(d)/ 52%
- --------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net asset
values may differ from the net asset value and returns for shareholder
transactions. Total returns are not annualized for periods less than one
year and do not reflect charges assessed in connection with a variable
product, which if included would reduce the total returns.
/(c)/Ratios are annualized and based on average daily net assets of $504,858.
/(d)/Not annualized for periods less than one year.
AIM V.I. UTILITIES FUND
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators,
including without limitation the Securities and Exchange Commission ("SEC"),
the New York Attorney General ("NYAG") and the Colorado Attorney General
("COAG"), to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG. These regulators alleged, in substance, that IFG and
AIM failed to disclose in the prospectuses for the AIM Funds that they advised
and to the independent directors/trustees of such Funds that they had entered
into certain arrangements permitting market timing of such Funds, thereby
breaching their fiduciary duties to such Funds. As a result of the foregoing,
the regulators alleged that IFG and AIM breached various Federal and state
securities, business and consumer protection laws. On the same date, A I M
Distributors, Inc. ("ADI") (the distributor of the retail AIM Funds) reached a
final settlement with the SEC to resolve an investigation relating to market
timing activity and related issues in the AIM Funds. The SEC also alleged that
ADI violated various Federal securities laws. The SEC also has settled related
market timing enforcement actions brought against certain former officers and
employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid and the remaining half will be paid on or before
December 31, 2005. AIM and ADI agreed to pay a total of $50 million, of which
$30 million is civil penalties, all of which has been paid. The entire $325
million IFG settlement payment will be made available for distribution to the
shareholders of those AIM Funds that IFG formerly advised that were harmed by
market timing activity, and the entire $50 million settlement payment by AIM
and ADI will be made available for distribution to the shareholders of those
AIM Funds advised by AIM that were harmed by market timing activity, all as to
be determined by an independent distribution consultant. The settlement
payments will be distributed in accordance with a methodology to be determined
by the independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on certain equity and balanced AIM Funds by $15 million per
year for the next five years, based upon effective fee rates and assets under
management as of July 1, 2004, and not to increase certain management fees.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. Also,
commencing in 2007 and at least once every other year thereafter, AIM will
undergo a compliance review by an independent third party. In addition, under
the terms of the settlements, AIM has undertaken to cause the AIM Funds to
operate in accordance with certain governance policies and practices, including
retaining a full-time independent senior officer whose duties will include
monitoring compliance and managing the process by which proposed management
fees to be charged the AIM Funds are negotiated. Also, commencing in 2008 and
not less than every fifth calendar year thereafter, the AIM Funds will hold
shareholder meetings at which their Boards of Trustees will be elected.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions against Raymond R.
Cunningham (the former president and chief executive officer of IFG and a
former member of the board of directors of the AIM Funds formerly advised by
IFG), Timothy J. Miller (the former chief investment officer and a former
portfolio manager for IFG), Thomas A. Kolbe (the former national sales manager
of IFG) and Michael D. Legoski (a former assistant vice president in IFG's
sales department). As part of these settlements, the SEC ordered these
individuals to pay restitution and civil penalties in various amounts and
prohibited them from associating with, or serving as an officer or director of,
an investment advisor, broker, dealer and/or investment company, as applicable,
for certain periods of time.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on certain equity and balanced AIM Funds by
$15 million per year for the next five years, based upon effective fee rates
and assets under management as of July 1, 2004). The manner in which the
settlement payments will be distributed is unknown at the present time and will
be determined by an independent distribution consultant appointed under the
settlement agreements. Therefore, management of AIM and the Fund are unable at
the present time to estimate the impact, if any, that the distribution of the
settlement payments may have on the Fund or whether such distribution will have
an impact on the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
The mutual fund industry as a whole is currently subject to regulatory
inquiries and litigation related to a wide range of issues. These issues
include, among others, market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including but not limited to revenue sharing and
directed-brokerage arrangements, investments in securities of other registered
investment companies, contractual plans, issues related to Section 529 college
savings plans, procedures for locating lost security holders and participation
in class action settlements.
As described more fully below, IFG and AIM are the subject of a number of
ongoing regulatory inquiries and civil lawsuits related to one or more of the
issues currently being scrutinized by various Federal and state regulators,
including but not limited to those issues described above. Additional
regulatory actions and/or civil lawsuits related to the above or other issues
may be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by the AIM Funds, IFG, AIM and/or related
entities and individuals in the future.
AIM V.I. UTILITIES FUND
NOTE 12--LEGAL PROCEEDINGS (continued)
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received
regulatory inquiries in the form of subpoenas or other oral or written requests
for information and/or documents related to one or more of the following
issues, some of which concern one or more such Funds: market timing activity,
late trading, fair value pricing, excessive or improper advisory and/or
distribution fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect
to these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other
parties also have received more limited inquiries from the SEC, the NASD, the
DOL, the Internal Revenue Service, the United States Attorney's Office for the
Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, some of
which concern one or more AIM Funds. AIM is providing full cooperation with
respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain
related entities, certain of their current and former officers and/or certain
unrelated third parties) making allegations that are similar in many respects
to those in the settled regulatory actions brought by the SEC, the NYAG and the
COAG concerning market timing activity in the AIM Funds. These lawsuits allege
a variety of theories of recovery, including but not limited to: (i) violation
of various provisions of the Federal and state securities laws; (ii) violation
of various provisions of ERISA; (iii) breach of fiduciary duty; and/or (iv)
breach of contract. These lawsuits were initiated in both Federal and state
courts and seek such remedies as compensatory damages; restitution; injunctive
relief; disgorgement of management fees; imposition of a constructive trust;
removal of certain directors and/or employees; various corrective measures
under ERISA; rescission of certain Funds' advisory agreements; interest; and
attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated
pre-trial proceedings. Pursuant to an Order of the MDL Court, plaintiffs
consolidated their claims for pre-trial purposes into three amended complaints
against various AIM- and IFG-related parties: (i) a Consolidated Amended Class
Action Complaint purportedly brought on behalf of shareholders of the AIM
Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly
brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended
Class Action Complaint for Violations of the Employee Retirement Income
Securities Act ("ERISA") purportedly brought on behalf of participants in
AMVESCAP's 401(k) plan. The plaintiffs in one of the underlying lawsuits
continue to seek remand of their lawsuit to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited
to: (i) violations of various provisions of the Federal securities laws; (ii)
common law breach of duty; and (iii) common law negligence and gross
negligence. These lawsuits have been filed in both Federal and state courts and
seek such remedies as compensatory and punitive damages; interest; and
attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and/or distribution fees and failed to
pass on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of
contract. These lawsuits have been filed in Federal courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees. All of these lawsuits have been
transferred to the United States District Court for the Southern District of
Texas, Houston Division by order of the applicable United States District Court
in which they were initially filed. The plaintiff in one of these lawsuits has
challenged this order.
AIM V.I. UTILITIES FUND
NOTE 12--LEGAL PROCEEDINGS (continued)
Private Civil Actions Alleging Improper Charging of Distribution Fees on
Limited Offering Funds or Share Classes
Multiple civil lawsuits, including shareholder derivative suits, have been
filed against various parties (including, depending on the lawsuit, IFG, AIM,
ADI and/or certain of the trustees of the AIM Funds) alleging that the
defendants breached their fiduciary duties by charging distribution fees while
funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same fund were not charged the same
distribution fees. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; and (ii) breach of fiduciary duty. These lawsuits have
been filed in Federal courts and seek such remedies as damages; injunctive
relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the
Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of
all fees paid; an accounting of all fund-related fees, commissions and soft
dollar payments; restitution of all unlawfully or discriminatorily obtained
fees and charges; and attorneys' and experts' fees.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing
to ensure that the AIM Funds participated in class action settlements in which
the AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
================================================================================
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
AIM V.I. UTILITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM V.I. Utilities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 AIM V.I. Utilities Fund, formerly
known as INVESCO VIF-Utilities Fund, (one of the funds constituting AIM
Variable Insurance Funds, formerly known as INVESCO Variable Investment Funds,
Inc., hereafter referred to as the "Fund") at December 31, 2004, 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 periods indicated, in conformity with accounting principles generally
accepted in the United States of America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
February 11, 2005
Houston, Texas
AIM V.I. UTILITIES FUND
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of INVESCO VIF-Utilities Fund (now known as
AIM V.I. Utilities Fund), ("Fund"), an investment portfolio of INVESCO Variable
Investment Funds, Inc. ("Company"), (now known as AIM Variable Insurance
Funds), a Delaware statutory trust, was held April 2, 2004. The meeting was
held for the following purposes:
(1)* To elect sixteen individuals to the Board of INVESCO Variable Investment
Funds, Inc. ("Company"), each of whom will serve until his or her
successor is elected and qualified: Bob R. Baker, Frank S. Bayley, James
T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K. Dunn, Jr., Jack
M. Fields, Carl Frischling, Robert H. Graham, Gerald J. Lewis, Prema
Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S. Sklar, Larry
Soll, Ph D. and Mark H. Williamson.
(2) To approve a new Investment Advisory Agreement with A I M Advisors, Inc.
(3) To approve a new Sub-Advisory Agreement between A I M Advisors, Inc. and
INVESCO Institutional (N.A.), Inc.
(4)* To approve an Agreement and Plan of Reorganization to redomesticate each
series portfolio of Company as a new series portfolio of AIM Variable
Insurance Funds, an existing Delaware statutory trust.
The results of the voting on the above matters were as follows:
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
-----------------------------------------------
(1)* Bob R. Baker....... 93,545,754 4,458,528
Frank S. Bayley.... 93,653,161 4,351,121
James T. Bunch..... 93,688,828 4,315,454
Bruce L. Crockett.. 93,737,421 4,266,861
Albert R. Dowden... 93,716,317 4,287,965
Edward K. Dunn, Jr. 93,623,043 4,381,239
Jack M. Fields..... 93,746,928 4,257,354
Carl Frischling.... 93,654,819 4,349,463
Robert H. Graham... 93,716,756 4,287,526
Gerald J. Lewis.... 93,594,018 4,410,264
Prema Mathai-Davis. 93,482,582 4,521,700
Lewis F. Pennock... 93,664,049 4,340,233
Ruth H. Quigley.... 93,518,516 4,485,766
Louis S. Sklar..... 93,623,163 4,381,119
Larry Soll, Ph.D... 93,521,612 4,482,670
Mark H. Williamson. 93,642,072 4,362,210
VOTES WITHHELD/
MATTER VOTES FOR AGAINST ABSTENTIONS
-------------------------------------------------------------------------
(2) Approval of a new Investment
Advisory Agreement with A I M
Advisors, Inc...................... 4,401,770 65,324 343,234
(3) Approval of a new Sub-Advisory
Agreement between A I M Advisors,
Inc. and INVESCO Institutional
(N.A.), Inc........................ 4,379,458 73,048 357,822
(4)* Approval of an Agreement and Plan
of Reorganization to redomesticate
each series portfolio of Company
as a new series portfolio of AIM
Variable Insurance Funds, an
existing Delaware statutory trust.. 88,123,016 3,299,467 6,581,799
* Proposal required approval by a combined vote of all the portfolios of
INVESCO Variable Investment Funds, Inc.
AIM V.I. UTILITIES FUND
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
Interested Persons
- ---------------------------------------------------------------------------------------------------------------------------
Robert H. Graham/1/ -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Vice Chair and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and
a global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M
Distributors, Inc. (registered broker
dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund
Management Company (registered broker
dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson/2/ -- 1951 Trustee 2003 Director, President and Chief Executive None
and Executive Vice President Officer, A I M Management Group Inc.
(financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director
and Chairman, AIM Investment Services,
Inc. (registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO
Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.;
and Chairman of NationsBanc
Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett/3/ -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee and Chair Associates (technology consulting company); and Captaris,
company) Inc. (unified messaging
provider)
- ---------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center;
and Chairman and Chief Executive
Officer, First Columbia Financial
Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & company)
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd., (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and Cortland Trust, Inc.
Trustee private business corporations, (Chairman) (registered
including the Boss Group Ltd. (private investment company);
investment and management) and Magellan Annuity and Life Re
Insurance Company (Holdings), Ltd.
(insurance company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President,
AB Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit &
Trust Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and
Trustee Century Group, Inc. (government affairs Discovery Global
company) and Texana Timber LP Education Fund (non-
(sustainable forestry company) profit)
- --------------------------------------------------------------------------------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
/3/ Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
AIM V.I. UTILITIES FUND
TRUSTEES AND OFFICERS (continued)
As of December 31, 2004
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 114 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
OTHER
DIRECTORSHIP(S)
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) DURING PAST 5 HELD BY
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE YEARS TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered investment
company)
- -----------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2004 Chairman, Lawsuit Resolution Services General Chemical
Trustee (California) Group, Inc.
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------
Louis S. Sklar/4/ -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------
Other Officers
- -----------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley/5/ -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M
Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds.
- -----------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice
President and General Counsel, Fund
Management Company and Senior Vice
President, A I M Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc., and
Vice President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1993 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and
Vice President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.
Formerly, Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, AIM Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg -- 1957 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President and
Senior Portfolio Manager, INVESCO
Institutional (N.A.), Inc.
- -----------------------------------------------------------------------------------------------------------------------
William R. Keithler -- 1952 2004 Senior Portfolio Manager, A I M N/A
Vice President Advisors, Inc.
Formerly: Senior Vice President,
Director of Sector Management and
Senior Portfolio
Manager, INVESCO Institutional (N.A.),
Inc.
- -----------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management,
Inc.; Director and President, Fund
Management Company; and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen/4/ -- 1940 1999 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc. (See footnote (4)
below.)
Formerly: Director of AIM Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- --------------------------------------------------------------------------------
/4/ Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
/5/ Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza. A I M Advisors, Inc A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Foley & Lardner LLP INDEPENDENT TRUSTEES AIM Investment Services, Inc. State Street Bank and Trust
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & P.O. Box 4739 Company
Washington D.C. 20007-5111 Frankel LLP Houston, TX 77210-4739 225 Franklin Street
919 Third Avenue Boston, MA 02110-2801
New York, NY 10022-3852
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 0% is eligible for the dividends received deduction for
corporations.
AIM V.I. UTILITIES FUND
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). There were no amendments to the Code during the period
covered by the report. The Registrant did not grant any waivers,
including implicit waivers, from any provisions of the Code to the PEO
or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least
one audit committee financial expert serving on its Audit Committee.
The Audit Committee financial expert is Prema Mathai-Davis. Dr.
Mathai-Davis is "independent" within the meaning of that term as used
in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
During some or all of the Registrant's last two fiscal years,
PricewaterhouseCoopers, LLP ("PWC") served as principal accountant for the
following series portfolios of the Registrant: AIM V.I. Real Estate Fund, AIM
V.I. Core Stock Fund, AIM V.I. Dynamics Fund, AIM V.I. Financial Services Fund,
AIM V.I. Health Sciences Fund, AIM V.I. Leisure Fund, AIM V.I. Small Company
Growth Fund, AIM V.I. Technology Fund, AIM V.I. Total Return Fund and AIM V.I.
Utilities Fund.
During some or all of the Registrant's last two fiscal years, Tait, Weller
& Baker ("TWB") served as principal accountant for the following series
portfolios of the Registrant: AIM V.I. Aggressive Growth Fund, AIM V.I.
Balanced Fund, AIM V.I. Basic Value Fund, AIM V.I. Blue Chip Fund, AIM V.I.
Capital Appreciation Fund, AIM V.I. Capital Development Fund, AIM V.I. Core
Equity Fund, AIM V.I. Dent Demographic Trends Fund, AIM V.I. Diversified Income
Fund, AIM V.I. Government Securities Fund, AIM V.I. Growth Fund, AIM V.I. High
Yield Fund, AIM V.I. International Growth Fund, AIM V.I. Large Cap Growth Fund,
AIM V.I. Mid Cap Core Equity Fund, AIM V.I. Money Market Fund, AIM V.I. Premier
Equity Fund and AIM V.I. Small Cap Equity Fund.
The amounts set forth below show, among other things, fees billed by PWC
and TWB to the Registrant in respect of such series portfolios, and certain
affiliated entities of the Registrant.
FEES BILLED BY PWC RELATED TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Services Provided Non-Audit Services
Fees Billed for for fiscal year end Provided for fiscal
Services Rendered 2004 Pursuant to Fees Billed for year end 2003
to the Registrant Waiver of Services Rendered to Pursuant to Waiver
for fiscal year end Pre-Approval the Registrant for of Pre-Approval
2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
------------------- ------------------- -------------------- --------------------
Audit Fees $248,732 N/A $240,566 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(3) $ 29,580 0% $ 37,700 0%
All Other Fees $ 0 0% $ 0 0%
-------- --------
Total Fees $278,312 0% $278,266 0%
PWC billed the Registrant aggregate non-audit fees of $29,580 for the fiscal
year ended 2004, and $37,700 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant to PWC during a fiscal year; and (iii) such services are
promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(3) Tax fees for the fiscal year end December 31, 2004 includes fees billed for
reviewing tax returns. Tax fees for fiscal year end December 31, 2003
includes fees billed for reviewing tax returns.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed A I M Advisors, Inc. ("AIM"), the Registrant's adviser, and any
entity controlling, controlled by or under common control with AIM that provides
ongoing services to the Registrant ("AIM Affiliates") aggregate fees for
pre-approved non-audit services rendered to AIM and AIM Affiliates for the last
two fiscal years as follows:
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2004 Provided for fiscal fiscal year end 2003 Provided for fiscal
That Were Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
-------------------- -------------------- --------------------- ----------------------
Audit-Related Fees $0 0% $0 0%
Tax Fees $0 0% $0 0%
All Other Fees $0 0% $0 0%
-- --
Total Fees(4) $0 0% $0 0%
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant, AIM and AIM Affiliates to PWC during a fiscal year; and (iii)
such services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the fees billed for non-audit
services shown in this column only represents fees for pre-approved
non-audit services rendered after May 6, 2003, to AIM and AIM Affiliates.
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(4) Including the fees for services not required to be pre-approved by the
registrant's audit committee, PWC billed AIM and AIM Affiliates aggregate
non-audit fees of $0 for the fiscal year ended 2004, and $0 for the fiscal
year ended 2003, for non-audit services rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining PWC's independence. To the extent that such
services were provided, the Audit Committee determined that the provision
of such services is compatible with PWC maintaining independence with
respect to the Registrant.
FEES BILLED BY TWB RELATED TO THE REGISTRANT
TWB billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Services Provided Non-Audit Services
Fees Billed for for fiscal year end Provided for fiscal
Services Rendered 2004 Pursuant to Fees Billed for year end 2003
to the Registrant Waiver of Services Rendered to Pursuant to Waiver
for fiscal year Pre-Approval the Registrant for of Pre-Approval
end 2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
----------------- -------------- -------------------- -------------------
Audit Fees $241,300 N/A $233,000 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(3) $ 41,400 0% $ 40,000 0%
All Other Fees $ 0 0% $ 0 0%
-------- --------
Total Fees $282,700 0% $273,000 0%
TWB billed the Registrant aggregate non-audit fees of $41,400 for the fiscal
year ended 2004, and $40,000 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant to TWB during a fiscal year; and (iii) such services are
promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the percentage of fees shown in
this column only represents fees billed for non-audit services rendered
after May 6, 2003, pursuant to a waiver of the pre-approval requirement.
(3) Tax fees for the fiscal year end December 31, 2004 includes fees billed for
reviewing tax returns. Tax fees for fiscal year end December 31, 2003
includes fees billed for reviewing tax returns.
FEES BILLED BY TWB RELATED TO AIM AND AIM AFFILIATES
TWB billed A I M Advisors, Inc ("AIM"), the Registrant's adviser, and any
entity controlling, controlled by or under common control with AIM that provides
ongoing services to the Registrant ("AIM Affiliates") aggregate fees for pre-
approved non-audit services rendered to AIM and AIM Affiliates for the last
two fiscal years as follows:
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2004 Provided for fiscal fiscal year end 2003 Provided for fiscal
That Were Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
-------------------- -------------------- -------------------- ---------------------
Audit-Related Fees $0 0% $0 0%
Tax Fees $0 0% $0 0%
All Other Fees $0 0% $0 0%
-- --
Total Fees(4) $0 0% $0 0%
- --------------------------------------------------------------------------------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant, AIM and AIM Affiliates to TWB during a fiscal
year; and (iii) such services are promptly approved by the Registrant's
Audit Committee prior to the completion of the audit by the Audit
Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the fees billed for
non-audit services shown in this column only represents fees for
pre-approved non-audit services rendered after May 6, 2003, to AIM and
AIM Affiliates.
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(4) Including the fees for services not required to be pre-approved by the
registrant's audit committee, TWB billed AIM and AIM Affiliates
aggregate non-audit fees of $0 for the fiscal year ended 2004, and $0
for the fiscal year ended 2003, for non-audit services rendered to AIM
and AIM Affiliates.
The Audit Committee also has considered whether the provision of
non-audit services that were rendered to AIM and AIM Affiliates that
were not required to be pre-approved pursuant to SEC regulations, if
any, is compatible with maintaining TWB's independence. To the extent
that such services were provided, the Audit Committee determined that
the provision of such services is compatible with TWB maintaining
independence with respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
Last Amended September 14, 2004
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of general
pre-approved fee levels will also require specific pre-approval by the Audit
Committees.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and states otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms (including fees) will be subject to
specific pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial statements with SEC registration statements, periodic reports and
other documents filed with the SEC or other documents issued in connection with
securities offerings.
GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of fees or established amounts for services to be provided by the
Auditor under general pre-approval policies will be set periodically by the
Audit Committees. Any proposed fees exceeding 110% of the maximum such amounts
will be reported to the Audit Committees at the quarterly Audit Committees
meeting and will require specific pre-approval by the Audit Committees. The
Audit Committee will always factor in the overall relationship of fees for audit
and non-audit services in determining whether to pre-approve any such services.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees and such other information as the Audit Committee may
request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client
o Financial information systems design and implementation Appraisal or
valuation services, fairness opinions, or contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board determines
by regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part
of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 16, 2004, an evaluation was performed under the supervision
and with the participation of the officers of the Registrant, including the
PEO and PFO, to assess the effectiveness of the Registrant's disclosure
controls and procedures, as that term is defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act"), as amended. Based on that
evaluation, the Registrant's officers, including the PEO and PFO, concluded
that, as of December 16, 2004, the Registrant's disclosure controls and
procedures were reasonably designed to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR is recorded,
processed, summarized and reported within the time periods specified by the
rules and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the PEO
and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the second fiscal quarter of the period covered by the
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds
By: /s/ ROBERT H. GRAHAM
-----------------------------------------------------------
Robert H. Graham
Principal Executive Officer
Date: February 25, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
-----------------------------------------------------------
Robert H. Graham
Principal Executive Officer
Date: February 25, 2005
By: /s/ SIDNEY M. DILGREN
-----------------------------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: February 25, 2005
EXHIBIT INDEX
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.