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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
- --------------------------------------------------------------------------------
(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: 12/31/03
---------------
AIM V.I. AGGRESSIVE GROWTH FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. AGGRESSIVE GROWTH FUND seeks to provide long-term growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. AGGRESSIVE GROWTH FUND
FUND RETURN EXCEEDS 25%
For the year ended December 31, 2003, AIM The nation's gross domestic product, During the fiscal year, more
V.I. Aggressive Growth Fund's Series I generally considered the broadest measure aggressive holdings began meeting our
shares returned 26.67%. Series II shares of economic activity, expanded at an selection criteria, and we began adding
returned 26.35%. The S&P 500--Registered annualized rate of 1.4% in the first to our holdings in information
Trademark-- Index, the fund's broadbased quarter, 3.1% in the second quarter, 8.2% technology. Conversely, we reduced our
benchmark, and the index frequently used in the third quarter, and 4.0% in the holdings in health care. At the end of
as a general measure of U.S. stock market fourth quarter of 2003. the fiscal year, information technology
performance, returned 28.67%. The Russell holdings had risen to 26.15% of the
2500--Registered Trademark-- Growth Index However, the job market, while fund's portfolio, and health care had
returned 46.31%, and the Lipper Mid-Cap improving, continued to be weak, as the decreased to 15.98%.
Growth Fund Index returned 35.42%. The nation's unemployment rate stood at 5.7%
fund underperformed its benchmark and the at the close of the year. Health care, consumer discretionary
other indexes because of its relatively and information technology were the three
defensive positioning earlier in the YOUR FUND sectors that contributed most to fund
fiscal year. performance for the year. Two of these
Because of market conditions when the sectors, information technology and
MARKET CONDITIONS fiscal year began, the fund was somewhat consumer discretionary, were also among
defensively positioned. By this we mean the top three performers for the S&P 500
The S&P 500 Index declined at the that our more aggressive, cyclical, or Index as well. The second-best performer
beginning of 2003, dropping to its lowest economically sensitive holdings were in the index was the materials sector.
level of the year on March 11. The index balanced by our more defensive, less The fund was underweight in materials
then rallied through the end of the economically sensitive holdings. compared to both the S&P 500 Index and
reporting period. the Russell 2500 Growth Index. The
Information technology is considered average return for the fund's materials
As of the close of the year, an economically sensitive sector because sector stocks was less than the sector
approximately 64% of the companies in the the amount of money that businesses have average in the two indexes, as was true
S&P 500 Index had reported third-quarter to spend can drastically affect the for the fund's holdings in the energy
earnings that exceeded analysts' return of this sector. In contrast, sector.
expectations while approximately 20% had health care is considered defensive, or
reported earnings that met those less economically sensitive, because As the economy improved, we were able
estimates. certain expenditures will be made even in to find more companies with attractive
a poor economy. earnings, so we were able to increase the
All sectors of the S&P 500 Index number of holdings in the fund's
recorded gains for the fiscal year. Applying current industry and sector portfolio. On December 31, 2002, the fund
Information technology, materials and classifications to the fund's holdings as owned 83 stocks. As of December 31, 2003,
consumer discretionary were the of December 31, 2002, 18.3% was in the fund owned 115 stocks. We found most
top-performing sectors while information technology. This was balanced of our opportunities for new holdings in
telecommunications services, consumer by health care holdings equaling 21.9% of the information technology and consumer
staples and health care were the the fund's portfolio. discretionary sectors. We also added new
weakest-performing sectors. holdings in financials, health care and
industrials.
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Danaher Corp. 2.3% 1. Data Processing & Total returns 12/31/02-12/31/03,
2. Fiserv, Inc. 2.2 Outsourced Services 8.6% excluding product issuer charges
3. Fastenal Co. 2.1 2. Specialty Stores 6.5
4. Investors Financial Services 3. Health Care Equipment 6.2 Series I Shares 26.67%
Corp. 2.0 4. Semiconductors 4.7 Series II Shares 26.35
5. CDW Corp. 1.9 5. Communications Equipment 4.6 S&P 500 Index (Broad Market Index) 28.67
6. ResMed Inc. 1.8 6. Asset Management & Russell 2500 Growth Index
7. Lehman Brothers Holdings Inc. 1.8 Custody Banks 4.6 (Style-Specific Index) 46.31
8. Zimmer Holdings, Inc. 1.8 7. Oil & Gas Drilling 3.8 Lipper Mid-Cap Growth Fund Index
9. Gentex Corp. 1.7 8. Diversified Commercial Services 3.6 (Peer Group Index) 35.42
10. Omnicare, Inc. 1.7 9. Industrial Machinery 3.0 Source: Lipper, Inc.
10. Oil & Gas Equipment & Services 2.3 TOTAL NUMBER OF HOLDINGS* 115
TOTAL NET ASSETS $147.2 MILLION
====================================================================================================================================
</Table>
<Table>
=========================================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
KARL F. FARMER
ROBERT M. KIPPES, LEAD MANAGER
JAY A. RUSHIN
ASSISTED BY MID CAP GROWTH TEAM
=========================================
*Excludes money market holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
AIM V.I. AGGRESSIVE GROWTH FUND
Caremark RX and Express Scripts were RESULTS OF A $10,000 INVESTMENT
among the top five contributors to fund 5/1/98-12/31/03
performance for the year. Both of these Index data from 4/30/98
companies provide pharmacy benefit
services. In the third quarter of 2003, [LINE CHART]
Caremark's revenues were up 32% over the
same quarter the previous year. Express LIPPER AIM V.I.
Scripts' revenues rose 10% in the nine MID-CAP AGGRESSIVE
months that ended September 30, 2003. GROWTH FUND RUSSELL 2500 S&P 500 GROWTH
INDEX GROWTH INDEX INDEX FUND-SERIES I
Among the holdings that detracted from 5/1/1998 10000 10000 10000 10000
fund performance were two holdings in the 12/31/1998 10031 9193 11172 9905
industrials sector, Cintas and Alliant 6/30/1999 11654 10624 12554 10700
Techsystems. Cintas is the largest 12/31/1999 17426 14293 13522 14329
provider of uniform and laundry services 6/30/2000 18175 15321 13464 17244
in North America. The relatively high 12/31/2000 14615 11993 12291 14701
unemployment during 2003, which reached 6/30/2001 12794 11647 11469 12661
its highest point in the first half of 12/31/2001 11535 10694 10832 10870
the year, affected Cintas' revenues. 6/30/2002 9532 8652 9407 9732
Though we sold the fund's shares in 12/31/2002 8251 7582 8439 8406
Cintas in 2003, after the close of the 6/30/2003 9553 9007 9430 9140
fiscal year, the company re-met our 12/31/2003 11173 11094 10858 10650
selection criteria, and we again
purchased shares in this security. Source: Lipper, Inc.
Alliant Techsystems sells solid Past performance cannot guarantee comparable future results.
propulsion systems for space vehicles, as
well as missiles and other In evaluating this chart, please note that the chart uses a logarithmic scale
defense-related systems and munitions to along the vertical axis (the value scale). This means that each scale increment
the U.S. government and its contractors. always represents the same percent change in price; in a linear chart each scale
Alliant's share price experienced increment always represents the same absolute change in price. In this example,
significant volatility during 2003, and the scale increment between $5,000 and $10,000 is the same as that between
in late August, analysts warned that the $10,000 and $20,000. In a linear chart, the latter scale increment would be
company's free cash flow was being twice as large. The benefit of using a logarithmic scale is that it better
affected by increased pension payments. illustrates performance during the fund's early years before reinvested
The fund no longer owns this stock. 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
IN CLOSING 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. AIM uses a
Throughout the fiscal year, we adhered to logarithmic scale in financial reports of funds that have more than five years
the fund's disciplined stock-selection of performance history.
process. We were diligent in our efforts
to achieve the fund's *Series II shares were first offered value of the U.S. dollar relative to the
objective--providing long-term growth of 3/26/02. Returns prior to that date are values of other currencies, the custody
capital by investing in small- and hypothetical results based on the arrangements made for the fund's foreign
mid-cap companies we expect to grow more performance of Series I shares (inception holdings, differences in accounting,
than 15% annually. date 5/1/98), adjusted to reflect Series political risks and the lesser degree of
II 12b-1 fees. The Series I and Series II public information required to be
---------- shares invest in the same portfolio of provided by non-U.S. companies.
securities and will have substantially
AVERAGE ANNUAL TOTAL RETURNS similar performance, except to the extent ABOUT INDEXES USED IN THIS REPORT
- ----------------------------------------- that expenses borne by each class differ.
As of 12/31/03 The unmanaged Standard & Poor's Composite
Current performance may be lower or Index of 500 Stocks (the S&P 500 Index)
SERIES I SHARES higher than the performance data quoted. is an index of common stocks frequently
Inception (5/1/98) 1.12% Past performance cannot guarantee used as a general measure of U.S. stock
5 Year 1.46 comparable future results. Due to market performance.
1 Year 26.67 significant market volatility, results of
an investment made today may differ The unmanaged Russell 2500 Growth
SERIES II SHARES* substantially from the historical Index is a subset of the unmanaged
Inception 0.88% performance shown. Please see your Russell 2500--Registered Trademark--
5 Year 1.22 financial advisor for more current Index, which measures the performance of
1 Year 26.35 performance. Fund performance figures are the 2,500 smallest companies in the
historical, and they reflect fund Russell 3000--Registered Trademark--
expenses, the reinvestment of Index, which measures the performance of
distributions and changes in net asset the 3,000 largest U.S. companies based on
value. The fund's investment return and total market capitalization; the Growth
principal value will fluctuate, so an subset measures the performance of
investor's shares, when redeemed, may be Russell 2500 companies with higher
worth more or less than their original price/book ratios and higher forecasted
cost. growth values.
AIM Variable Insurance Funds are The unmanaged Lipper Mid-Cap Growth
offered through insurance company Fund Index represents an average of the
separate accounts to fund variable performance of the 30 largest
annuity contracts and variable life mid-capitalization growth funds tracked
insurance policies, and through certain by Lipper, Inc., an independent mutual
pension or retirement plans. Performance fund performance monitor.
figures given represent the fund and are
not intended to reflect actual variable A direct investment cannot be made in
product values. They do not reflect sales an index. Unless otherwise indicated,
charges, expenses and fees at the index results include reinvested
separate account level. Sales charges, dividends, and they do not reflect sales
expenses and fees, which are determined charges. Performance of an index of funds
by the product issuers, will vary and reflects fund expenses; performance of a
will lower the total return. market index does not.
PRINCIPAL RISKS OF INVESTING IN THE FUND Industry classifications used in this
report are generally according to the
Investing in small and mid-size companies Global Industry Classification Standard,
may involve risks not associated with which was developed by and is the
investing in more established companies. exclusive property and a service mark of
Also, small companies may have business Morgan Stanley Capital International Inc.
risk, significant stock price and Standard & Poor's.
fluctuations and illiquidity.
A description of the policies and
The fund may invest up to 25% of its procedures that the Fund uses to
total assets in foreign securities. determine how to vote proxies relating to
International investing presents certain portfolio securities is available without
risks not associated with investing charge, upon request, by calling
solely in the United States. These 800-959-4246, or on the AIM Web site,
include risks relating to fluctuations in AIMinvestments.com.
the
VIAGRO-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS-96.85%
ADVERTISING-0.62%
Lamar Advertising Co.(a) 24,600 $ 918,072
=======================================================================
AEROSPACE & DEFENSE-0.27%
L-3 Communications Holdings, Inc.(a) 7,800 400,608
=======================================================================
AIR FREIGHT & LOGISTICS-1.57%
Expeditors International of Washington, Inc. 30,100 1,133,566
- -----------------------------------------------------------------------
Robinson (C.H.) Worldwide, Inc. 31,200 1,182,792
=======================================================================
2,316,358
=======================================================================
APPAREL RETAIL-1.58%
Aeropostale, Inc.(a) 17,800 488,076
- -----------------------------------------------------------------------
Chico's FAS, Inc.(a) 14,800 546,860
- -----------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 31,600 790,316
- -----------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 23,950 505,824
=======================================================================
2,331,076
=======================================================================
APPLICATION SOFTWARE-1.96%
Cognos, Inc. (Canada)(a) 34,100 1,044,142
- -----------------------------------------------------------------------
Fair Issac Corp. 6,400 314,624
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 15,300 744,192
- -----------------------------------------------------------------------
PeopleSoft, Inc.(a) 34,100 777,480
=======================================================================
2,880,438
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-4.55%
Investors Financial Services Corp. 78,000 2,995,980
- -----------------------------------------------------------------------
Legg Mason, Inc. 24,900 1,921,782
- -----------------------------------------------------------------------
T. Rowe Price Group Inc. 37,400 1,773,134
=======================================================================
6,690,896
=======================================================================
AUTO PARTS & EQUIPMENT-2.24%
Gentex Corp. 57,800 2,552,448
- -----------------------------------------------------------------------
Lear Corp. 12,200 748,226
=======================================================================
3,300,674
=======================================================================
BIOTECHNOLOGY-0.63%
Invitrogen Corp.(a) 13,200 924,000
=======================================================================
BROADCASTING & CABLE TV-1.97%
Entercom Communications Corp.(a) 12,300 651,408
- -----------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 29,995 1,190,502
- -----------------------------------------------------------------------
Westwood One, Inc.(a) 30,900 1,057,089
=======================================================================
2,898,999
=======================================================================
COMMUNICATIONS EQUIPMENT-4.62%
Avocent Corp.(a) 37,400 1,365,848
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
MARKET
SHARES VALUE
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Comverse Technology, Inc.(a) 84,600 $ 1,488,114
- -----------------------------------------------------------------------
Plantronics, Inc.(a) 30,900 1,008,885
- -----------------------------------------------------------------------
Polycom, Inc.(a) 15,400 300,608
- -----------------------------------------------------------------------
QLogic Corp.(a) 12,900 665,640
- -----------------------------------------------------------------------
UTStarcom, Inc.(a) 53,000 1,964,710
=======================================================================
6,793,805
=======================================================================
COMPUTER & ELECTRONICS RETAIL-1.53%
Best Buy Co., Inc. 43,000 2,246,320
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.43%
Electronics for Imaging, Inc.(a) 24,100 627,082
=======================================================================
CONSTRUCTION & ENGINEERING-1.26%
Jacobs Engineering Group Inc.(a) 38,700 1,857,987
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.52%
AGCO Corp.(a) 37,800 761,292
=======================================================================
CONSUMER ELECTRONICS-0.60%
Harman International Industries, Inc. 12,000 887,760
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-8.64%
Affiliated Computer Services, Inc.-Class A(a) 31,200 1,699,152
- -----------------------------------------------------------------------
Alliance Data Systems Corp.(a) 74,500 2,062,160
- -----------------------------------------------------------------------
CheckFree Corp.(a) 30,300 837,795
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 12,300 513,648
- -----------------------------------------------------------------------
Fiserv, Inc.(a) 81,100 3,204,261
- -----------------------------------------------------------------------
Iron Mountain Inc.(a) 29,000 1,146,660
- -----------------------------------------------------------------------
Paychex, Inc. 40,900 1,521,480
- -----------------------------------------------------------------------
SunGard Data Systems Inc.(a) 62,400 1,729,104
=======================================================================
12,714,260
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.59%
Apollo Group, Inc.-Class A(a) 31,175 2,119,900
- -----------------------------------------------------------------------
Arbitron Inc.(a) 12,000 500,640
- -----------------------------------------------------------------------
Corporate Executive Board Co. (The)(a) 27,200 1,269,424
- -----------------------------------------------------------------------
CoStar Group Inc.(a) 15,300 637,704
- -----------------------------------------------------------------------
University of Phoenix Online(a) 10,900 751,337
=======================================================================
5,279,005
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.75%
Rockwell Automation, Inc. 31,200 1,110,720
=======================================================================
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.97%
National Instruments Corp. 15,000 $ 682,050
- -----------------------------------------------------------------------
Waters Corp.(a) 22,600 749,416
=======================================================================
1,431,466
=======================================================================
EMPLOYMENT SERVICES-1.19%
Robert Half International Inc.(a) 74,800 1,745,832
=======================================================================
GENERAL MERCHANDISE STORES-0.51%
Fred's, Inc. 24,200 749,716
=======================================================================
HEALTH CARE DISTRIBUTORS-2.26%
Omnicare, Inc. 62,400 2,520,336
- -----------------------------------------------------------------------
Patterson Dental Co.(a) 12,500 802,000
=======================================================================
3,322,336
=======================================================================
HEALTH CARE EQUIPMENT-6.22%
Biomet, Inc. 29,800 1,085,018
- -----------------------------------------------------------------------
ResMed Inc.(a) 64,500 2,679,330
- -----------------------------------------------------------------------
St. Jude Medical, Inc.(a) 24,900 1,527,615
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 17,800 1,229,980
- -----------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 37,400 2,632,960
=======================================================================
9,154,903
=======================================================================
HEALTH CARE FACILITIES-1.01%
Health Management Associates, Inc.-Class A 62,200 1,492,800
=======================================================================
HEALTH CARE SERVICES-1.79%
Caremark Rx, Inc.(a) 62,400 1,580,592
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 15,800 1,049,594
=======================================================================
2,630,186
=======================================================================
HEALTH CARE SUPPLIES-2.05%
Cooper Cos., Inc. (The) 23,400 1,102,842
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 46,300 1,915,431
=======================================================================
3,018,273
=======================================================================
HOME ENTERTAINMENT SOFTWARE-0.49%
Electronic Arts Inc.(a) 15,100 721,478
=======================================================================
INDUSTRIAL MACHINERY-2.98%
Danaher Corp. 37,400 3,431,450
- -----------------------------------------------------------------------
Eaton Corp. 8,800 950,224
=======================================================================
4,381,674
=======================================================================
INTERNET RETAIL-0.52%
eBay Inc.(a) 11,900 768,621
=======================================================================
INTERNET SOFTWARE & SERVICES-0.46%
United Online, Inc.(a) 40,000 671,600
=======================================================================
INVESTMENT BANKING & BROKERAGE-2.31%
Bear Stearns Cos. Inc. (The) 9,400 751,530
- -----------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Lehman Brothers Holdings Inc. 34,300 $ 2,648,646
=======================================================================
3,400,176
=======================================================================
IT CONSULTING & OTHER SERVICES-0.93%
CACI International Inc.-Class A(a) 28,100 1,366,222
=======================================================================
LEISURE PRODUCTS-0.82%
Marvel Enterprises, Inc.(a) 41,500 1,208,065
=======================================================================
MULTI-LINE INSURANCE-0.37%
HCC Insurance Holdings, Inc. 17,200 546,960
=======================================================================
OFFICE SERVICES & SUPPLIES-0.59%
Moore Wallace Inc. (Canada)(a) 46,500 870,945
=======================================================================
OIL & GAS DRILLING-3.75%
Nabors Industries, Ltd. (Bermuda)(a) 43,700 1,813,550
- -----------------------------------------------------------------------
ENSCO International Inc. 62,400 1,695,408
- -----------------------------------------------------------------------
Patterson-UTI Energy, Inc.(a) 61,100 2,011,412
=======================================================================
5,520,370
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.34%
Cooper Cameron Corp.(a) 28,100 1,309,460
- -----------------------------------------------------------------------
National-Oilwell, Inc.(a) 46,800 1,046,448
- -----------------------------------------------------------------------
Smith International, Inc.(a) 26,400 1,096,128
=======================================================================
3,452,036
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.52%
Newfield Exploration Co.(a) 26,500 1,180,310
- -----------------------------------------------------------------------
XTO Energy, Inc. 37,400 1,058,420
=======================================================================
2,238,730
=======================================================================
PHARMACEUTICALS-2.02%
Medicis Pharmaceutical Corp.-Class A 31,200 2,224,560
- -----------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 11,700 754,650
=======================================================================
2,979,210
=======================================================================
PUBLISHING-1.83%
Belo Corp.-Class A 34,200 969,228
- -----------------------------------------------------------------------
Getty Images, Inc.(a) 34,300 1,719,459
=======================================================================
2,688,687
=======================================================================
REGIONAL BANKS-0.71%
Southwest Bancorp. of Texas, Inc. 17,200 668,220
- -----------------------------------------------------------------------
TCF Financial Corp. 7,300 374,855
=======================================================================
1,043,075
=======================================================================
RESTAURANTS-1.45%
Cheesecake Factory Inc. (The)(a) 12,300 541,569
- -----------------------------------------------------------------------
Sonic Corp.(a) 20,400 624,648
- -----------------------------------------------------------------------
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
RESTAURANTS-(CONTINUED)
Starbucks Corp.(a) 29,300 $ 968,658
=======================================================================
2,134,875
=======================================================================
SEMICONDUCTORS-4.69%
Marvell Technology Group Ltd. (Bermuda)(a) 18,900 716,877
- -----------------------------------------------------------------------
Altera Corp.(a) 55,600 1,262,120
- -----------------------------------------------------------------------
AMIS Holdings, Inc.(a) 39,500 722,060
- -----------------------------------------------------------------------
Broadcom Corp.-Class A(a) 20,900 712,481
- -----------------------------------------------------------------------
Intersil Corp.-Class A 29,800 740,530
- -----------------------------------------------------------------------
Linear Technology Corp. 37,200 1,565,004
- -----------------------------------------------------------------------
Microchip Technology Inc. 35,500 1,184,280
=======================================================================
6,903,352
=======================================================================
SPECIALIZED FINANCE-1.64%
Chicago Mercantile Exchange (The) 15,100 1,092,636
- -----------------------------------------------------------------------
Moody's Corp. 21,800 1,319,990
=======================================================================
2,412,626
=======================================================================
SPECIALTY CHEMICALS-0.73%
Valspar Corp. (The) 21,800 1,077,356
=======================================================================
SPECIALTY STORES-6.47%
Bed Bath & Beyond Inc.(a) 46,800 2,028,780
- -----------------------------------------------------------------------
CarMax, Inc.(a) 24,900 770,157
- -----------------------------------------------------------------------
Pep Boys (The) -- Manny, Moe & Jack 12,100 276,727
- -----------------------------------------------------------------------
Regis Corp. 18,200 719,264
- -----------------------------------------------------------------------
Staples, Inc.(a) 81,100 2,214,030
- -----------------------------------------------------------------------
Tractor Supply Co.(a) 43,300 1,683,937
- -----------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 52,700 1,832,379
=======================================================================
9,525,274
=======================================================================
</Table>
<Table>
<Caption>
- -----------------------------------------------------------------------
MARKET
SHARES VALUE
SYSTEMS SOFTWARE-1.02%
Adobe Systems Inc. 17,800 $ 699,540
- -----------------------------------------------------------------------
Symantec Corp.(a) 23,300 807,345
=======================================================================
1,506,885
=======================================================================
TECHNOLOGY DISTRIBUTORS-1.94%
CDW Corp. 49,400 2,853,344
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.48%
Doral Financial Corp. (Puerto Rico) 19,050 614,934
- -----------------------------------------------------------------------
New York Community Bancorp, Inc. 24,900 947,445
- -----------------------------------------------------------------------
Radian Group Inc. 12,500 609,375
=======================================================================
2,171,754
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-2.12%
Fastenal Co. 62,400 3,116,256
=======================================================================
TRUCKING-0.34%
Sirva Inc.(a) 25,400 496,316
=======================================================================
Total Common Stocks (Cost $110,763,680) 142,540,751
=======================================================================
MONEY MARKET FUNDS-3.15%
Liquid Assets Portfolio(b) 2,318,243 2,318,243
- -----------------------------------------------------------------------
STIC Prime Portfolio(b) 2,318,243 2,318,243
- -----------------------------------------------------------------------
Total Money Market Funds (Cost $4,636,486) 4,636,486
=======================================================================
TOTAL INVESTMENTS-100.00% (Cost $115,400,166) 147,177,237
- -----------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-0.00% 6,830
- -----------------------------------------------------------------------
NET ASSETS-100.00% $147,184,067
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. AGGRESSIVE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$110,763,680) $142,540,751
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $4,636,486) 4,636,486
- -------------------------------------------------------------
Receivables for:
Investments sold 1,436,328
- -------------------------------------------------------------
Fund shares sold 125,929
- -------------------------------------------------------------
Dividends 33,400
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 29,875
=============================================================
Total assets 148,802,769
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,409,158
- -------------------------------------------------------------
Fund shares reacquired 74,932
- -------------------------------------------------------------
Deferred compensation and retirement plans 31,531
- -------------------------------------------------------------
Accrued administrative services fees 84,270
- -------------------------------------------------------------
Accrued distribution fees -- Series II 1,608
- -------------------------------------------------------------
Accrued transfer agent fees 783
- -------------------------------------------------------------
Accrued operating expenses 16,420
=============================================================
Total liabilities 1,618,702
=============================================================
Net assets applicable to shares outstanding $147,184,067
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $183,323,118
- -------------------------------------------------------------
Undistributed net investment income (loss) (30,701)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (67,885,421)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 31,777,071
=============================================================
$147,184,067
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $144,341,130
_____________________________________________________________
=============================================================
Series II $ 2,842,937
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 13,633,841
_____________________________________________________________
=============================================================
Series II 269,588
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 10.59
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 10.55
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,140) $ 312,127
- ------------------------------------------------------------
Dividends from affiliated money market funds 67,956
============================================================
Total investment income 380,083
============================================================
EXPENSES:
Advisory fees 954,349
- ------------------------------------------------------------
Administrative services fees 333,247
- ------------------------------------------------------------
Custodian fees 34,270
- ------------------------------------------------------------
Distribution fees -- Series II 3,175
- ------------------------------------------------------------
Transfer agent fees 9,607
- ------------------------------------------------------------
Trustees' fees 10,151
- ------------------------------------------------------------
Other 32,196
============================================================
Total expenses 1,376,995
============================================================
Less: Fees waived and expense offset
arrangements (1,273)
- ------------------------------------------------------------
Net expenses 1,375,722
============================================================
Net investment income (loss) (995,639)
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 1,240,818
- ------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 29,212,917
- ------------------------------------------------------------
Net gain from investment securities 30,453,735
============================================================
Net increase in net assets resulting from
operations $29,458,096
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. AGGRESSIVE GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (995,639) $ (1,025,477)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 1,240,818 (24,744,006)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 29,212,917 (5,730,299)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 29,458,096 (31,499,782)
==========================================================================================
Share transactions-net:
Series I 11,603,390 13,097,095
- ------------------------------------------------------------------------------------------
Series II 2,075,980 560,534
==========================================================================================
Net increase in net assets resulting from share
transactions 13,679,370 13,657,629
==========================================================================================
Net increase (decrease) in net assets 43,137,466 (17,842,153)
==========================================================================================
NET ASSETS:
Beginning of year 104,046,601 121,888,754
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(30,701) and $(26,873) for 2003 and 2002,
respectively) $147,184,067 $104,046,601
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. AGGRESSIVE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Aggressive 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
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. 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.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. AGGRESSIVE GROWTH FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
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.
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 AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. AIM has voluntarily agreed
to waive fees of Series I and Series II shares to the extent necessary to limit
the expenses and /or reimburse expenses (excluding interest, taxes, fund merger
and reorganization expenses, extraordinary items, including other items
designated as such by the Board of Trustees and increases in expenses due to
expense offset arrangements, if any) of each Series to 1.30%. Voluntary expense
limitations may be modified or discontinued at any time without further notice
to investors. 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. For the year ended December 31, 2003, AIM waived fees of $1,245.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $333,247, of which AIM
retained $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $10,250 for
services provided by AIM.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $3,175.
Certain officers and trustees of the Trust are officers 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $2,333,208 $28,885,133 $(28,900,098) $-- $2,318,243 $33,561 $--
- --------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 2,333,208 28,885,133 (28,900,098) -- 2,318,243 34,395 --
================================================================================================================================
$4,666,416 $57,770,266 $(57,800,196) $-- $4,636,486 $67,956 $--
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$1 and reductions in custodian fees of $27 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $28.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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
AIM V.I. AGGRESSIVE GROWTH FUND
certain former Trustees that also participate in a retirement plan and receive
benefits under such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $3,793
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 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:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation-investments $ 30,362,380
- -------------------------------------------------------------
Temporary book/tax differences (30,701)
- -------------------------------------------------------------
Capital loss carryforward (66,470,730)
- -------------------------------------------------------------
Shares of beneficial interest 183,323,118
=============================================================
Total net assets $147,184,067
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2006 $ 354,222
- -----------------------------------------------------------
December 31, 2007 44,406
- -----------------------------------------------------------
December 31, 2008 1,780,366
- -----------------------------------------------------------
December 31, 2009 35,123,543
- -----------------------------------------------------------
December 31, 2010 29,039,053
- -----------------------------------------------------------
December 31, 2011 129,140
===========================================================
Total capital loss carryforward $66,470,730
___________________________________________________________
===========================================================
</Table>
AIM V.I. AGGRESSIVE GROWTH 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, 2003 was $115,260,716 and $102,570,651, respectively.
The amount of unrealized appreciation (depreciation) of investment
securities, for tax purposes, as of December 31, 2003 is as follows:
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $32,114,001
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,751,621)
============================================================
Net unrealized appreciation of investment
securities $30,362,380
____________________________________________________________
============================================================
Cost of investments for tax purposes is $116,814,857
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses on
December 31, 2003, undistributed net investment income was increased by
$991,811, undistributed net realized gains decreased by $1 and shares of
beneficial interest decreased by $991,810. This reclassification had no effect
on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Sold:
Series I 4,612,939 $ 41,545,198 3,797,152 $ 36,852,751
- -------------------------------------------------------------------------------
Series II* 322,541 3,093,273 4,341,864 39,301,001
===============================================================================
Reacquired:
Series I (3,370,121) (29,941,808) (2,678,493) (23,755,656)
- -------------------------------------------------------------------------------
Series II* (105,190) (1,017,293) (4,289,627) (38,740,467)
===============================================================================
1,460,169 $ 13,679,370 1,170,896 $ 13,657,629
_______________________________________________________________________________
===============================================================================
</Table>
* Series II shares commenced sales on March 26, 2002.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.36 $ 10.81 $ 14.62 $ 14.25 $ 9.85
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.08) (0.10)(a) (0.10)(a) (0.04)(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 2.31 (2.37) (3.71) 0.47 4.44
========================================================================================================================
Total from investment operations 2.23 (2.45) (3.81) 0.37 4.40
========================================================================================================================
Less distributions from net investment income -- -- -- -- --
========================================================================================================================
Net asset value, end of period $ 10.59 $ 8.36 $ 10.81 $ 14.62 $ 14.25
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 26.67% (22.66)% (26.06)% 2.60% 44.67%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $144,341 $103,611 $121,889 $103,181 $17,326
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 1.15%(c) 1.16% 1.21% 1.16(d) 1.19%(d)
========================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.83)%(c) (0.87)% (0.88)% (0.59)% (0.41)%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 90% 85% 90% 65% 89%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not reflect charges at
the separate account level which if included would reduce total returns
for all periods shown.
(c) Ratios are based on average daily net assets of $118,023,574.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 1.26% and 2.42% for the years ended December 31, 2000 and 1999,
respectively.
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------
MARCH 26, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.35 $ 10.70
- ------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.10)
- ------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 2.30 (2.25)
====================================================================================
Total from investment operations 2.20 (2.35)
====================================================================================
Net asset value, end of period $10.55 $ 8.35
____________________________________________________________________________________
====================================================================================
Total return(b) 26.35% (21.96)%
____________________________________________________________________________________
====================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,843 $ 436
____________________________________________________________________________________
====================================================================================
Ratio of expenses to average net assets 1.40%(c) 1.32%(d)(e)
====================================================================================
Ratio of net investment income (loss) to
average net assets (1.08)%(c) (1.03)%(d)
____________________________________________________________________________________
====================================================================================
Portfolio turnover rate(f) 90% 85%
____________________________________________________________________________________
====================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $1,270,040.
(d) Annualized.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.41% for the period ended December 31, 2002.
(f) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. AGGRESSIVE GROWTH FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. AGGRESSIVE GROWTH FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Aggressive Growth Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2003, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the years or periods in the five
year period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Aggressive Growth Fund as of December 31, 2003, 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 years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. AGGRESSIVE GROWTH FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company); and
President Director and Vice Chairman, AMVESCAP PLC and
Chairman of 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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and 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
- ----------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ----------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and Captaris,
Inc. (unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief (insurance company)
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 Century Administaff, Discovery
Trustee Group, Inc. (government affairs company) and Global Education Fund
Texana Timber LP (sustainable forestry company) (non-profit)
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. AGGRESSIVE GROWTH FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and General Counsel, A I M Management Group Inc.
Chief Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
- ----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, AIM
Investment Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
AIM V.I. AGGRESSIVE GROWTH FUND
AIM V.I. BALANCED FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. BALANCED FUND seeks to achieve
as high a total return as possible,
consistent with preservation of capital.
YOUR GOALS. OUR SOLUTIONS [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. BALANCED FUND
AFTER TRAILING BENCHMARK INDEXES, and industrial sectors, which typically
FUND ADJUSTS INVESTMENT STRATEGY benefit from a rising economy.
AIM V.I. Balanced Fund finished the year stock market performance, recorded gains The top positive contributor to fund
ended December 31, 2003, with total for the fiscal year. The best performing performance was Cisco Systems, a global
returns of 16.36% for Series I shares sectors were those most likely to leader in data networking hardware. It
and 16.15% for Series II shares. These benefit from a rising economy: benefited from stabilizing revenue
results trailed the 19.94% return of the information technology, materials and trends and improving economic
Lipper Balanced Fund Index, which consumer discretionary. The sectors that fundamentals that appear likely to lead
represents the fund's peer group, and are more economically defensive, such as to increased technology spending.
also the broad U.S. stock market as telecommunication services, consumer Another top contributor was United
reflected in the S&P 500<168> Index staples and health care, were the Technologies, which benefited from the
which returned 28.67% for the same weakest performers. strength of a diversified portfolio of
period. It is to be expected that the companies that generated favorable
fund would underperform an equity index For the first half of the year, the earnings growth despite the recent
such as the S&P 500 because of the Federal Reserve (the Fed) kept the weakness in the broader economy.
fund's allocation to fixed income short-term federal funds rate at 1.25%.
securities, which generated more modest, On June 25, 2003, it reduced that rate Food retailer Kraft detracted from
single digit returns during the period. to 1.00%, where it remained for the rest results as both company-specific issues
of the year. and a more difficult operating
To more closely approximate the environment led investors to reduce
fund's allocation to stocks and bonds, The U.S. investment-grade fixed-rate their expectations for double-digit
we use a custom index of 60% Russell securities market, as measured by the earnings growth.
3000--Registered Trademark-- Index and Lehman U.S. Aggregate Bond Index,
40% Lehman U.S. Aggregate Bond Index. returned 4.10% for the 12- month period. Among fixed-income holdings, the
This custom index returned 19.80% for Here also, the more economically largest positive contribution came from
the fiscal year. sensitive sectors performed best. Within corporate debt, which has historically
that index, U.S. corporate instruments benefited from improving economic
MARKET CONDITIONS averaged the highest results with an conditions.
8.24% return, followed by fixed-rate
The nation's gross domestic product, mortgage-backed securities at 3.07%, In December of 2003, several changes
generally considered the broadest U.S. agency investments at 2.59% and were made to the fund's portfolio
measure of economic activity, expanded U.S. Treasuries of various maturities at management team, with the Basic Value
at an annualized rate of 1.4% in the an average of 2.24%. Team now managing the fund's equity
first quarter of 2003, 3.1% in the holdings. While we continued to manage
second quarter, 8.2% in the third YOUR FUND the fund with the objective of
quarter, and 4.0% in the fourth quarter. maximizing total return, your new team
In the fund's equity portfolio, the will use a value-oriented strategy that
All sectors of the S&P 500, which is largest positive contributions to the puts a greater emphasis on the
frequently cited as a general measure of fiscal year's results came from the preservation of capital. We encourage
U.S. information technology, financial you to visit the AIM Web site,
AIMinvestments.com, to learn more about
the team.
</Table>
<Table>
<Caption>
==================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 FIXED INCOME ISSUERS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03
- ----------------------------------------------------------------------------------------------------------------------------------
1. Tyco International Ltd. 1. U.S. Treasury Notes 8.0% 1. U.S. Government Agency
(Bermuda) 2.4% 2. Federal National Securities 15.0%
2. Citigroup Inc. 2.2 Mortgage Association (FNMA) 6.6 2. U.S. Treasury Securities 9.9
3. Computer Associates 3. Federal Home Loan 3. Other Diversified Financial
International, Inc. 2.0 Mortgage Corp. (FHLMC) 6.2 Services 4.9
4. Waste Management, Inc. 2.0 4. Government National 4. Industrial Conglomerates 3.5
5. Fannie Mae 2.0 Mortgage Association (GNMA) 2.1 5. Investment Banking & Brokerage 3.3
6. Omnicom Group Inc. 1.9 5. U.S. Treasury Bonds 1.9 6. Thrifts & Mortgage Finance 3.1
7. J.P. Morgan Chase & Co. 1.9 6. Sprint Capital Corp. 0.8 7. Health Care Distributors 2.8
8. Cendant Corp. 1.8 7. Citicorp Lease 0.5 8. Pharmaceuticals 2.7
9. First Data Corp. 1.7 8. Time Warner Cos. Inc. 0.5 9. Oil & Gas Equipment & Services 2.7
10. Bank One Corp. 1.7 9. General Motors Acceptance Corp. 0.4 10. Diversified Banks 2.5
10. Tritel PCS Inc. 0.4 TOTAL NUMBER OF HOLDINGS* 261
TOTAL NET ASSETS $101.8 million
*Based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
==================================================================================================================================
</Table>
<Table>
Our goal is to grow your capital by RESULTS OF A $10,000 INVESTMENT AIM V.I. BALANCED FUND
investing primarily in U.S. companies 5/1/98-12/31/03
that are significantly undervalued on an Index data from 4/30/98
absolute basis. The basic value
discipline is based on the philosophy 60% Russell 3000/
that business value is separate from, 40% Lehman U.S. Lipper Balanced AIM V.I. Balanced
but eventually determines, market value. Aggregate Bond Index Fund Index Fund-Series I Shares S&P 500 Index
Major points of this philosophy are that 5/1/1998 10000 10000 10000 10000
businesses have an intrinsic value that 12/31/1998 10847 10591 11303 11172
is independent of the market, stock 6/30/1999 11516 11244 11942 12554
prices are more volatile than business 12/31/1999 12139 11541 13484 13522
values, investors regularly overreact to 6/30/2000 12411 11742 13732 13464
negative news, and a long-term 12/31/2000 12149 11817 12916 12291
investment horizon is required. 6/30/2001 11898 11619 12025 11469
12/31/2001 11735 11435 11440 10832
IN CLOSING 6/30/2002 11036 10743 10164 9407
12/31/2002 10625 10213 9485 8439
As of December 31, 2003, we had largely 6/30/2003 11604 11118 10190 9430
completed the changes required to adopt 12/31/2003 12728 12248 11038 10858
this more conservative philosophy.
Changes were made in the fund's equity Source: Lipper, Inc.
holdings, but we made no adjustments to
the fixed-income holdings, which remain
a well-diversified portfolio of Past performance cannot guarantee comparable future results.
investment-grade securities. Most
importantly, we continued the ongoing In evaluating this chart, please note that the chart uses a logarithmic scale along
effort to maximize the total return of the vertical axis (the value scale). This means that each scale increment always
your investment. 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.
AVERAGE ANNUAL TOTAL RETURNS 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
As of 12/31/03 early years before reinvested distributions and compounding create the potential for
SERIES I SHARES the original investment to grow to very large numbers. Had the chart used a linear
Inception (5/1/98) 1.76% scale along its vertical axis, you would not be able to see as clearly the movements
5 Years -0.47 in the value of the fund and the indexes during the fund's early years. We use a
1 Year 16.36 logarithmic scale in financial reports of funds that have more than five years of
performance history.
SERIES II SHARES*
Inception 1.52% annuity contracts and variable life Index, which represents the U.S.
5 Years -0.71 insurance policies, and through certain investment-grade fixed-rate bond market
1 Year 16.15 pension or retirement plans. Performance (including government and corporate
figures given represent the fund and are securities, mortgage passthrough
not intended to reflect actual variable securities and asset-backed securities),
product values. They do not reflect is compiled by Lehman Brothers, a
*Series II shares were first offered sales charges, expenses and fees at the well-known global investment bank.
1/24/02. Returns prior to that date are separate account level. Sales charges,
hypothetical results based on the expenses and fees, which are determined A direct investment cannot be made in
performance of Series I shares by the product issuers, will vary and an index. Unless otherwise indicated,
(inception date 5/1/98), adjusted to will lower the total return. index results include reinvested
reflect Series II 12b-1 fees. The Series dividends, and they do not reflect sales
I and Series II shares invest in the PRINCIPAL RISKS OF INVESTING IN THE FUND charges. Performance of an index of
same portfolio of securities and will funds reflects fund expenses;
have substantially similar performance, International investing presents certain performance of a market index does not.
except to the extent that expenses borne risks not associated with investing
by each class differ. solely in the United States. These Industry classifications used in this
include risks relating to fluctuations report are generally according to the
Current performance may be lower or in the value of the U.S. dollar relative Global Industry Classification Standard,
higher than the performance data quoted. to the values of other currencies, the which was developed by and is the
Past performance cannot guarantee custody arrangements made for the fund's exclusive property and a service mark of
comparable future results. Due to foreign holdings, differences in Morgan Stanley Capital International
significant market volatility, results accounting, political risks and the Inc. and Standard & Poor's.
of an investment made today may differ lesser degree of public information
substantially from the historical required to be provided by non-U.S. A description of the policies and
performance shown. Please see your companies. procedures that the Fund uses to
financial advisor for more current determine how to vote proxies relating
performance. Fund performance figures ABOUT INDEXES USED IN THIS REPORT to portfolio securities is available
are historical, and they reflect fund without charge, upon request, by calling
expenses, the reinvestment of The unmanaged Lipper Balanced Fund Index 800-959-4246, or on the AIM Web site,
distributions and changes in net asset represents an average of the 30 largest AIMinvestments.com.
value. The fund's investment return and balanced funds tracked by Lipper, Inc.,
principal value will fluctuate, so an an independent mutual fund performance ========================================
investor's shares, when redeemed, may be monitor. It is calculated daily, with PORTFOLIO MANAGEMENT TEAM
worth more or less than their original adjustments for distributions as of the AS OF 12/31/03
cost. ex-dividend dates. BRET W. STANLEY, LEAD MANAGER
R. CANON COLEMAN
AIM Variable Insurance Funds are The unmanaged Standard & Poor's JAN H. FRIEDLI
offered through insurance company Composite Index of 500 Stocks (the S&P SCOT W. JOHNSON
separate accounts to fund variable 500) is an index of common stocks MATTHEW W. SEINSHEIMER
frequently used as a general measure of MICHAEL J. SIMON
U.S. stock market performance. ASSISTED BY THE BASIC VALUE
AND INVESTMENT GRADE TEAMS
The fund uses a custom index composed ========================================
of 60% Russell 3000 Index and 40% Lehman
U.S. Aggregate Bond Index. The unmanaged
Russell 3000 Index is an index of common
stocks that measures performance of the
largest 3,000 U.S. companies based on
market capitalization. The unmanaged
Lehman U.S. Aggregate Bond
VIBAL-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-62.48%
ADVERTISING-1.92%
Omnicom Group Inc. 22,400 $ 1,956,192
========================================================================
AEROSPACE & DEFENSE-2.11%
Honeywell International Inc. 37,800 1,263,654
- ------------------------------------------------------------------------
United Technologies Corp. 9,300 881,361
========================================================================
2,145,015
========================================================================
ALUMINUM-0.43%
Alcoa Inc. 11,500 437,000
========================================================================
APPAREL RETAIL-1.25%
Gap, Inc. (The) 55,000 1,276,550
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.40%
Bank of New York Co., Inc. (The) 43,000 1,424,160
========================================================================
BUILDING PRODUCTS-2.06%
American Standard Cos. Inc.(a) 10,200 1,027,140
- ------------------------------------------------------------------------
Masco Corp. 39,000 1,068,990
========================================================================
2,096,130
========================================================================
COMMUNICATIONS EQUIPMENT-1.62%
Cisco Systems, Inc.(a) 39,600 961,884
- ------------------------------------------------------------------------
Motorola, Inc. 48,600 683,802
========================================================================
1,645,686
========================================================================
CONSUMER ELECTRONICS-2.37%
Koninklijke (Royal) Philips Electronics N.V.-
New York Shares (Netherlands) 39,000 1,134,510
- ------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 37,000 1,282,790
========================================================================
2,417,300
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.33%
DST Systems, Inc.(a) 14,500 605,520
- ------------------------------------------------------------------------
First Data Corp. 43,000 1,766,870
========================================================================
2,372,390
========================================================================
DEPARTMENT STORES-0.97%
May Department Stores Co. (The) 34,000 988,380
========================================================================
DIVERSIFIED BANKS-1.70%
Bank One Corp. 38,000 1,732,420
========================================================================
DIVERSIFIED CAPITAL MARKETS-1.88%
J.P. Morgan Chase & Co. 52,000 1,909,960
========================================================================
DIVERSIFIED CHEMICALS-0.39%
Dow Chemical Co. (The) 9,500 394,915
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-1.84%
Cendant Corp.(a) 84,000 $ 1,870,680
========================================================================
ENVIRONMENTAL SERVICES-2.01%
Waste Management, Inc. 69,000 2,042,400
========================================================================
FOOD RETAIL-2.41%
Kroger Co. (The)(a) 78,000 1,443,780
- ------------------------------------------------------------------------
Safeway Inc.(a) 46,000 1,007,860
========================================================================
2,451,640
========================================================================
GENERAL MERCHANDISE STORES-1.40%
Target Corp. 37,000 1,420,800
========================================================================
HEALTH CARE DISTRIBUTORS-2.79%
Cardinal Health, Inc. 24,800 1,516,768
- ------------------------------------------------------------------------
McKesson Corp. 41,000 1,318,560
========================================================================
2,835,328
========================================================================
HEALTH CARE EQUIPMENT-0.99%
Baxter International Inc. 33,000 1,007,160
========================================================================
HEALTH CARE FACILITIES-1.43%
HCA Inc. 34,000 1,460,640
========================================================================
HEALTH CARE SERVICES-0.49%
IMS Health Inc. 20,000 497,200
========================================================================
INDUSTRIAL CONGLOMERATES-3.47%
General Electric Co. 35,200 1,090,496
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 92,000 2,438,000
========================================================================
3,528,496
========================================================================
INDUSTRIAL MACHINERY-1.43%
Illinois Tool Works Inc. 17,400 1,460,034
========================================================================
INVESTMENT BANKING & BROKERAGE-2.90%
Merrill Lynch & Co., Inc. 23,700 1,390,005
- ------------------------------------------------------------------------
Morgan Stanley 27,000 1,562,490
========================================================================
2,952,495
========================================================================
MANAGED HEALTH CARE-1.25%
Anthem, Inc.(a) 17,000 1,275,000
========================================================================
MOVIES & ENTERTAINMENT-1.60%
Walt Disney Co. (The) 70,000 1,633,100
========================================================================
MULTI-LINE INSURANCE-0.84%
Hartford Financial Services Group, Inc. (The) 14,500 855,935
========================================================================
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS DRILLING-0.99%
Transocean Inc. (Cayman Islands)(a) 42,000 $ 1,008,420
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.70%
Cooper Cameron Corp.(a) 15,000 699,000
- ------------------------------------------------------------------------
Halliburton Co. 41,000 1,066,000
- ------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 18,000 984,960
========================================================================
2,749,960
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.19%
Citigroup Inc. 46,000 2,232,840
========================================================================
PACKAGED FOODS & MEATS-1.11%
Kraft Foods Inc.-Class A 35,000 1,127,700
========================================================================
PHARMACEUTICALS-2.74%
Aventis S.A. (France) 23,000 1,516,021
- ------------------------------------------------------------------------
Wyeth 30,100 1,277,745
========================================================================
2,793,766
========================================================================
PROPERTY & CASUALTY INSURANCE-1.59%
ACE Ltd. (Cayman Islands) 39,000 1,615,380
========================================================================
SEMICONDUCTOR EQUIPMENT-0.79%
Applied Materials, Inc.(a) 36,000 808,200
========================================================================
SYSTEMS SOFTWARE-2.04%
Computer Associates International, Inc. 76,000 2,077,840
========================================================================
THRIFTS & MORTGAGE FINANCE-3.05%
Fannie Mae 26,700 2,004,102
- ------------------------------------------------------------------------
MGIC Investment Corp. 19,300 1,098,942
========================================================================
3,103,044
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $59,244,743) 63,604,156
========================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-12.56%
AEROSPACE & DEFENSE-0.03%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 25,000 28,639
========================================================================
ALTERNATIVE CARRIERS-0.08%
INTELSAT (Bermuda), Notes, 6.50%, 11/01/13
(Acquired 10/31/03; Cost $76,406)(b)(c) 75,000 78,457
========================================================================
AUTOMOBILE MANUFACTURERS-0.04%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 40,000 40,576
========================================================================
BROADCASTING & CABLE TV-1.22%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 175,000 195,240
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Clear Channel Communications, Inc., Sr.
Unsec. Gtd. Notes, 8.00%, 11/01/08 $ 75,000 $ 87,678
- ------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 170,000 174,933
- ------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 50,000 58,750
- ------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 100,000 114,260
- ------------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec. Notes,
6.63%, 02/15/06 50,000 53,982
- ------------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 65,000 80,135
- ------------------------------------------------------------------------
Time Warner Cos. Inc.,
Sr. Unsec. Gtd. Deb, 6.88%, 06/15/18 200,000 218,148
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Deb., 7.25%, 10/15/17 45,000 51,307
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24 40,000 45,092
- ------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 150,000 162,388
========================================================================
1,241,913
========================================================================
CONSUMER FINANCE-0.92%
Capital One Financial Corp.,
Sr. Global Notes, 8.25%, 06/15/05 75,000 81,112
- ------------------------------------------------------------------------
Sr. Unsec. Notes, 7.25%, 05/01/06 200,000 215,546
- ------------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes, 6.88%, 02/01/06 200,000 213,308
- ------------------------------------------------------------------------
Unsec. Global Notes, 7.50%, 03/15/05 150,000 158,464
- ------------------------------------------------------------------------
Hertz Corp. (The)-Class A, Floating Rate
Global Notes, 1.71%, 08/13/04(d) 25,000 24,750
- ------------------------------------------------------------------------
Household Finance Corp.,
Global Notes, 6.38%, 11/27/12 150,000 164,080
- ------------------------------------------------------------------------
Medium Term Notes, 3.38%, 02/21/06 20,000 20,397
- ------------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 50,000 54,139
========================================================================
931,796
========================================================================
DIVERSIFIED BANKS-0.84%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $27,726)(b)(c) 25,000 26,767
- ------------------------------------------------------------------------
Bank of America Corp.-Series B, Putable Sub.
Medium Term Notes, 8.57%, 11/15/04 40,000 52,199
- ------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$61,532)(b)(c)(e) 50,000 60,843
- ------------------------------------------------------------------------
Barnett Capital I, Gtd. Notes, 8.06%,
12/01/26 50,000 57,465
- ------------------------------------------------------------------------
Barnett Capital II, Gtd. Notes, 7.95%,
12/01/26 30,000 33,349
- ------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$63,272)(b)(c) 50,000 60,124
- ------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 110,000 108,857
- ------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61%
(Acquired 11/05/03; Cost $23,313)(b)(c)(e) 25,000 23,529
- ------------------------------------------------------------------------
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.50%(e)(f) $ 130,000 $ 110,226
- ------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 100,000 127,115
- ------------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%(e) 25,000 23,798
- ------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 160,000 174,469
========================================================================
858,741
========================================================================
DIVERSIFIED CAPITAL MARKETS-0.19%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(e) 160,000 197,014
========================================================================
ELECTRIC UTILITIES-0.71%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 15,000 16,436
- ------------------------------------------------------------------------
American Electric Power Co., Inc., Sr. Unsec.
Unsub. Notes, 5.25%, 06/01/15 35,000 34,374
- ------------------------------------------------------------------------
CenterPoint Energy, Inc., Notes, 5.88%,
06/01/08 (Acquired 05/21/03; Cost
$35,298)(b) 35,000 36,234
- ------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 25,000 25,688
- ------------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(g) 45,000 49,537
- ------------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds,
6.00%, 02/15/14 (Acquired 10/03/03; Cost
$76,673)(b)(c) 75,000 78,432
- ------------------------------------------------------------------------
Hydro-Quebec (Canada),
Gtd. Floating Rate Euro Notes, 1.25%(e)(f) 170,000 152,780
- ------------------------------------------------------------------------
Series B, Gtd. Medium Term Notes, 8.62%,
12/15/11 50,000 63,005
- ------------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 5.25%, 11/01/18 145,000 144,949
- ------------------------------------------------------------------------
Southern Power Co., Bonds, 4.88%, 07/15/15
(Acquired 07/01/03; Cost $34,908)(b) 35,000 33,404
- ------------------------------------------------------------------------
United Energy Distribution Holdings
Proprietary Ltd. (Australia), Sr. Unsec.
Unsub. Notes, 4.70%, 04/15/11 (Acquired
11/12/03; Cost $39,960)(b)(c) 40,000 40,400
- ------------------------------------------------------------------------
Xcel Energy, Inc., Sr. Global Notes, 3.40%,
07/01/08 50,000 48,915
========================================================================
724,154
========================================================================
ENVIRONMENTAL SERVICES-0.10%
Waste Management, Inc., Sr. Unsec. Unsub.
Notes, 7.38%, 08/01/10 90,000 103,916
========================================================================
FOOD RETAIL-0.10%
Fred Meyer, Inc., Sr. Unsec. Gtd. Notes,
7.38%, 03/01/05 25,000 26,668
- ------------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 75,000 74,994
========================================================================
101,662
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
GAS UTILITIES-0.09%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 $ 50,000 $ 53,754
- ------------------------------------------------------------------------
MCN Corp., First Mortgage Bonds, 5.70%,
03/15/33 40,000 38,816
========================================================================
92,570
========================================================================
HEALTH CARE FACILITIES-0.05%
HCA Inc., Notes, 6.25%, 02/15/13 50,000 51,492
========================================================================
HOMEBUILDING-0.06%
Lennar Corp.-Series B, Class A, Sr. Unsec.
Gtd. Global Notes, 9.95%, 05/01/10 50,000 57,125
========================================================================
HYPERMARKETS & SUPER CENTERS-0.09%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 80,000 86,727
========================================================================
INDUSTRIAL CONGLOMERATES-0.04%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$45,291)(b)(c) 40,000 44,605
========================================================================
INTEGRATED OIL & GAS-0.08%
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 35,000 37,765
- ------------------------------------------------------------------------
TGT Pipeline LLC, Global Bonds, 5.20%,
06/01/18 50,000 47,016
========================================================================
84,781
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.98%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 15,000 16,521
- ------------------------------------------------------------------------
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 20,000 23,650
- ------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 55,000 59,785
- ------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 9.75%, 03/01/31 50,000 66,093
- ------------------------------------------------------------------------
GTE Corp., Unsec. Deb., 6.36%, 04/15/06(g) 200,000 216,656
- ------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 80,000 87,262
- ------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 20,000 22,472
- ------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 6.00%,
01/15/07 110,000 117,182
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 7.13%,
01/30/06 265,000 284,194
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes, 6.13%,
11/15/08 125,000 132,841
- ------------------------------------------------------------------------
Unsec. Gtd. Global Notes, Unsec. Gtd.
Global Notes, 7.90%, 03/15/05 170,000 181,264
- ------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 8.75%, 03/15/32 50,000 59,257
- ------------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 200,000 238,938
- ------------------------------------------------------------------------
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 $ 250,000 $ 277,812
- ------------------------------------------------------------------------
8.00%, 06/01/11 40,000 46,900
- ------------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Unsub. Global Notes, 7.75%, 12/01/30 25,000 29,250
- ------------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 150,000 157,869
========================================================================
2,017,946
========================================================================
INVESTMENT BANKING & BROKERAGE-0.39%
Goldman Sachs Group, Inc. (The), Unsec.
Global Notes, 4.13%, 01/15/08 125,000 127,924
- ------------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 100,000 111,601
- ------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 100,000 111,934
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05 45,000 46,353
========================================================================
397,812
========================================================================
LIFE & HEALTH INSURANCE-0.28%
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$99,945)(b)(c) 100,000 106,255
- ------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 145,000 157,685
- ------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 20,000 22,433
========================================================================
286,373
========================================================================
MULTI-LINE INSURANCE-0.07%
MassMutual Global Funding II, Notes, 3.80%,
04/15/09 (Acquired 10/07/03; Cost
$74,900)(b)(c) 75,000 74,830
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.02%
Duke Energy Corp., First Mortgage Bonds,
3.75%, 03/05/08 20,000 20,086
========================================================================
MUNICIPALITIES-0.29%
Illinois (State of); Unlimited Tax Pension
Series 2003 GO, 5.10%, 06/01/33(h) 325,000 298,828
========================================================================
OIL & GAS DRILLING-0.06%
Transocean Inc.(Cayman Islands), Sr. Unsec.
Unsub. Global Deb., 8.00%, 04/15/27 50,000 60,064
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.24%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired
12/04/02-02/04/03; Cost $179,450)(b)(c) 243,893 243,381
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.10%
Petroleos Mexicanos (Mexico), Unsec. Gtd.
Unsub. Global Notes, 6.50%, 02/01/05 $ 60,000 $ 62,850
- ------------------------------------------------------------------------
Plains All American Pipeline L.P./PAA Finance
Corp., Sr. Notes, 5.63%, 12/15/13 (Acquired
12/03/03; Cost $34,907)(b)(c) 35,000 35,265
========================================================================
98,115
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.08%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18 125,000 145,128
- ------------------------------------------------------------------------
CIT Group Inc.,
Sr. Global Notes, 7.13%, 10/15/04 100,000 104,368
- ------------------------------------------------------------------------
Sr. Unsec. Notes, 6.63%, 06/15/05 75,000 79,935
- ------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 45,000 48,859
- ------------------------------------------------------------------------
Citigroup Inc., Global Bonds, 6.00%, 10/31/33 175,000 175,263
- ------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$41,704)(b)(c) 35,000 39,876
- ------------------------------------------------------------------------
First Industrial Realty Trust, Inc., PATS,
7.38%, 05/15/04 (Acquired 02/06/03; Cost
$52,425)(b)(c) 50,000 50,929
- ------------------------------------------------------------------------
General Electric Capital Corp.,
Gtd. Sub. Notes, 8.13%, 05/15/12 100,000 121,210
- ------------------------------------------------------------------------
Sr. Medium Term Global Notes, 4.25%,
12/01/10 50,000 49,677
- ------------------------------------------------------------------------
Series A, Medium Term Global Notes, 2.85%,
01/30/06 20,000 20,257
- ------------------------------------------------------------------------
Series A, Medium Term Global Notes, 5.88%,
02/15/12 45,000 48,471
- ------------------------------------------------------------------------
Series A, Medium Term Global Notes, 6.00%,
06/15/12 30,000 32,477
- ------------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Notes, 4.50%, 07/15/06 70,000 71,957
- ------------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 50,000 51,884
- ------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 300,000 321,384
- ------------------------------------------------------------------------
Heller Financial, Inc.-Class A, Sr. Unsec.
Global Notes, 8.00%, 06/15/05 75,000 81,448
- ------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(e) 100,000 120,909
- ------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands)-Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 130,000 150,881
- ------------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Unsub. Gtd. Global Notes, 7.38%, 12/15/14 250,000 263,803
- ------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 125,000 136,059
========================================================================
2,114,775
========================================================================
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
PUBLISHING-0.12%
News America Holdings, Inc.,
Sr. Unsec. Gtd. Deb., 7.70%, 10/30/25 $ 60,000 $ 69,931
- ------------------------------------------------------------------------
Unsec. Deb., 7.75%, 01/20/24 45,000 52,638
========================================================================
122,569
========================================================================
REAL ESTATE-0.08%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 75,000 84,207
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.17%
Dominion Resources, Inc. Sr. Unsec. Putable
Notes, 5.25%, 08/01/15 175,000 174,790
========================================================================
REGIONAL BANKS-0.46%
Branch Banking & Trust Co., Unsec. Sub.
Global Notes, 5.20%, 12/23/15 125,000 124,680
- ------------------------------------------------------------------------
Greater Bay Bancorp.-Series B, Sr. Notes,
5.25%, 03/31/08 300,000 302,757
- ------------------------------------------------------------------------
Union Planters Corp., Notes, 4.38%, 12/01/10 40,000 39,779
========================================================================
467,216
========================================================================
REINSURANCE-0.09%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.50%, 06/15/10 75,000 86,201
========================================================================
RESTAURANTS-0.04%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 40,000 43,873
========================================================================
SOVEREIGN DEBT-0.43%
Japan Bank for International Coop. (Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 125,000 134,645
- ------------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 30,000 35,026
- ------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09(g) 50,000 54,777
- ------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 50,000 50,813
- ------------------------------------------------------------------------
6.63%, 03/03/15 50,000 51,938
- ------------------------------------------------------------------------
7.50%, 04/08/33 110,000 114,813
========================================================================
442,012
========================================================================
THRIFTS & MORTGAGE FINANCE-0.09%
Countrywide Home Loans, Inc.,
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 10,000 10,696
- ------------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 75,000 76,879
========================================================================
87,575
========================================================================
TOBACCO-0.05%
Altria Group, Inc., Notes, 7.00%, 11/04/13 30,000 32,029
- ------------------------------------------------------------------------
Altria Group, Inc., Unsec. Notes, 6.38%,
02/01/06 15,000 15,743
========================================================================
47,772
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
TRUCKING-0.11%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 $ 100,000 $ 112,867
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.77%
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 300,000 356,130
- ------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 350,000 421,883
========================================================================
778,013
========================================================================
Total Bonds & Notes (Cost $12,603,942) 12,783,473
========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-14.99%
FEDERAL HOME LOAN BANK-0.03%
Unsec. Bonds,
4.88%, 04/16/04 30,000 30,330
========================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-6.20%
Pass Through Ctfs.,
7.00%, 06/01/15 to 06/01/32 269,452 285,297
- ------------------------------------------------------------------------
6.00%, 05/01/17 to 05/01/32 234,448 243,470
- ------------------------------------------------------------------------
5.50%, 10/01/18 374,513 388,661
- ------------------------------------------------------------------------
5.00%, 12/01/18 399,961 408,071
- ------------------------------------------------------------------------
7.50%, 11/01/30 to 05/01/31 129,816 139,447
- ------------------------------------------------------------------------
6.50%, 01/01/31 to 08/01/32 371,382 389,128
- ------------------------------------------------------------------------
Unsec. Disc. Notes,
1.15%, 01/02/04(i) 4,374,000 4,373,909
- ------------------------------------------------------------------------
Unsec. Global Notes,
2.75%, 03/15/08 90,000 88,156
========================================================================
6,316,139
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.63%
Pass Through Ctfs.,
6.50%, 04/01/14 to 05/01/32 862,337 904,292
- ------------------------------------------------------------------------
7.50%, 11/01/15 14,069 15,070
- ------------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32 260,478 276,595
- ------------------------------------------------------------------------
6.00%, 01/01/17 to 05/01/33 1,310,945 1,360,087
- ------------------------------------------------------------------------
5.00%, 10/01/17 to 04/01/18 552,377 564,261
- ------------------------------------------------------------------------
5.50%, 06/01/18 to 12/01/33 2,425,538 2,479,748
- ------------------------------------------------------------------------
8.00%, 08/01/21 to 12/01/23 80,197 87,402
- ------------------------------------------------------------------------
Unsec. Global Notes,
1.88%, 09/15/05 175,000 175,205
- ------------------------------------------------------------------------
4.38%, 09/15/12 40,000 39,532
- ------------------------------------------------------------------------
6.20%, 06/13/17 200,000 208,256
- ------------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 450,000 481,365
- ------------------------------------------------------------------------
</Table>
AIM V.I. BALANCED FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
Unsec. Sub. Notes,
5.25%, 08/01/12 $ 150,000 $ 153,957
========================================================================
6,745,770
========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-2.13%
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31 142,502 153,196
- ------------------------------------------------------------------------
8.50%, 11/15/24 157,419 173,522
- ------------------------------------------------------------------------
8.00%, 08/15/25 36,743 40,178
- ------------------------------------------------------------------------
6.50%, 03/15/29 to 12/15/33 413,771 436,489
- ------------------------------------------------------------------------
6.00%, 09/15/31 to 05/15/33 851,136 885,759
- ------------------------------------------------------------------------
7.00%, 09/15/31 to 03/15/33 260,028 277,198
- ------------------------------------------------------------------------
5.50%, 12/15/33 200,000 203,600
========================================================================
2,169,942
========================================================================
Total U.S. Government Agency Securities
(Cost $15,167,921) 15,262,181
========================================================================
U.S. TREASURY SECURITIES-9.89%
U.S. TREASURY NOTES-7.97%
2.13%, 10/31/04 2,600,000 2,620,930
- ------------------------------------------------------------------------
1.50%, 02/28/05 1,765,000 1,769,413
- ------------------------------------------------------------------------
6.75%, 05/15/05 500,000 536,095
- ------------------------------------------------------------------------
6.50%, 10/15/06 935,000 1,041,945
- ------------------------------------------------------------------------
3.50%, 11/15/06 800,000 827,248
- ------------------------------------------------------------------------
3.13%, 10/15/08 1,000,000 998,750
- ------------------------------------------------------------------------
5.00%, 02/15/11 to 08/15/11 300,000 321,671
========================================================================
8,116,052
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
U.S. TREASURY BONDS-1.92%
7.25%, 05/15/16 $ 470,000 $ 586,692
- ------------------------------------------------------------------------
7.50%, 11/15/16 1,075,000 1,369,453
========================================================================
1,956,145
========================================================================
Total U.S. Treasury Securities (Cost
$9,909,421) 10,072,197
========================================================================
ASSET-BACKED SECURITIES-0.66%
ELECTRIC UTILITIES-0.03%
Public Service Co. of Colorado, Global
Collateral Trust, 4.88%, 03/01/13 25,000 24,911
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.63%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-09/23/03; Cost $311,760)(b)(c) 292,506 313,520
- ------------------------------------------------------------------------
Citicorp Lease-Series 1999-1, Class A2, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-07/14/00; Cost $198,931)(b)(c) 200,000 235,132
- ------------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp., Sr. Sec. Global Collateral Trust,
6.00%, 05/15/06 50,000 53,583
- ------------------------------------------------------------------------
Yorkshire Power (Cayman Islands)-Series
2000-1, Pass Through Ctfs., 8.25%, 02/15/05
(Acquired 11/12/03; Cost $42,720)(b)(c) 40,000 42,413
========================================================================
644,648
========================================================================
Total Asset-Backed Securities (Cost
$622,381) 669,559
========================================================================
TOTAL INVESTMENTS-100.58% (Cost $97,548,408) 102,391,566
========================================================================
OTHER ASSETS LESS LIABILITIES-(0.58%) (593,483)
========================================================================
NET ASSETS-100.00% $101,798,083
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
GO - General Obligation Bonds
Gtd. - Guaranteed
PATS - Pass Through Asset Trust Securities
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
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 these securities.
The aggregate market value of these securities at 12/31/03 was $1,624,396,
which represented 1.60% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 12/31/03 was $1,554,758, which represented
1.53% of the Fund's net assets.
(d) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 12/31/03.
(e) Perpetual bond with no specified maturity date.
(f) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 12/31/03.
(g) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Security
Assurance, or MBIA Insurance Corp.
(h) Interest on this security is taxable income to the Fund.
(i) The interest rate shown represents the rate of discount paid or received at
the time of purchase by the Fund.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $97,548,408) $102,391,566
- -------------------------------------------------------------
Receivables for:
Investments sold 875,592
- -------------------------------------------------------------
Fund shares sold 39,961
- -------------------------------------------------------------
Dividends and interest 382,154
- -------------------------------------------------------------
Investment matured (Note 9) 5,480
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 29,167
- -------------------------------------------------------------
Other assets 907
=============================================================
Total assets 103,724,827
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,813,429
- -------------------------------------------------------------
Fund shares reacquired 6,836
- -------------------------------------------------------------
Deferred compensation and retirement plans 30,707
- -------------------------------------------------------------
Accrued administrative services fees 52,426
- -------------------------------------------------------------
Accrued distribution fees-Series II 2,252
- -------------------------------------------------------------
Accrued transfer agent fees 548
- -------------------------------------------------------------
Accrued operating expenses 20,546
=============================================================
Total liabilities 1,926,744
=============================================================
Net assets applicable to shares outstanding $101,798,083
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $121,657,583
- -------------------------------------------------------------
Undistributed net investment income 1,399,297
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
futures contracts and option contracts (26,099,730)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 4,840,933
=============================================================
$101,798,083
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 97,665,411
_____________________________________________________________
=============================================================
Series II $ 4,132,672
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,771,435
_____________________________________________________________
=============================================================
Series II 415,297
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 9.99
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 9.95
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Interest $ 1,483,475
- ------------------------------------------------------------
Dividends (net of foreign withholding tax of
$4,995) 771,910
- ------------------------------------------------------------
Dividends from affiliated money market funds 50,190
============================================================
Total investment income 2,305,575
============================================================
EXPENSES:
Advisory fees 670,072
- ------------------------------------------------------------
Administrative services fees 240,713
- ------------------------------------------------------------
Custodian fees 30,592
- ------------------------------------------------------------
Distribution fees -- Series II 5,590
- ------------------------------------------------------------
Transfer agent fees 6,538
- ------------------------------------------------------------
Trustees' fees 9,791
- ------------------------------------------------------------
Other 35,959
============================================================
Total expenses 999,255
============================================================
Less: Fees waived and expense offset
arrangements (1,159)
============================================================
Net expenses 998,096
============================================================
Net investment income 1,307,479
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 2,514,666
- ------------------------------------------------------------
Foreign currencies 6,103
- ------------------------------------------------------------
Futures contracts 82,144
- ------------------------------------------------------------
Option contracts written 22,882
============================================================
2,625,795
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 9,921,462
- ------------------------------------------------------------
Foreign currencies (2,461)
- ------------------------------------------------------------
Futures contracts 36,514
============================================================
9,955,515
============================================================
Net gain from investment securities, foreign
currencies, futures contracts and option
contracts 12,581,310
============================================================
Net increase in net assets resulting from
operations $13,888,789
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BALANCED FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,307,479 $ 1,788,118
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts 2,625,795 (16,085,136)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts 9,955,515 (4,164,060)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 13,888,789 (18,461,078)
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,803,131) (2,269,083)
- ------------------------------------------------------------------------------------------
Series II (73,995) (18,693)
==========================================================================================
Decrease in net assets resulting from distributions (1,877,126) (2,287,776)
==========================================================================================
Share transactions-net:
Series I 3,122,103 (1,822,445)
- ------------------------------------------------------------------------------------------
Series II 3,065,718 775,141
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 6,187,821 (1,047,304)
==========================================================================================
Net increase (decrease) in net assets 18,199,484 (21,796,158)
==========================================================================================
NET ASSETS:
Beginning of year 83,598,599 105,394,757
==========================================================================================
End of year (including undistributed net investment income
of $1,399,297 and $1,821,292 for 2003 and 2002,
respectively) $101,798,083 $ 83,598,599
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Balanced 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
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. 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.
The Fund's investment objective is to achieve as high a total return as
possible, consistent with preservation of capital. Each company listed in the
Schedule of Investments is organized in the United States of America unless
otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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. 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
AIM V.I. BALANCED FUND
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 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").
D. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price. The mortgage-backed securities that are repurchased
will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories. During the period between the sale and repurchase, the Fund will
not be entitled to receive interest and principal payments on securities
sold. Proceeds of the sale may be invested in short-term instruments, and
the income from these investments, together with any additional fee income
received on the sale, could generate income for the Fund exceeding the
yield on the security sold. The difference between the selling price and
the future repurchase price is recorded as realized gains (loss). At the
time the Fund enters into the dollar roll, it will segregate liquid assets
having a dollar value equal to the repurchase price.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
E. DISTRIBUTIONS -- Distributions from income and net realized capital gains,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
F. 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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
G. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
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. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the
AIM V.I. BALANCED FUND
account of the broker (the Fund's agent in acquiring the futures position).
During the period the futures contracts are open, changes in the value of
the contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
K. 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.
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 AIM at the annual rate of 0.75% of the first
$150 million of the Fund's average daily net assets, plus 0.50% of the Fund's
average daily net assets in excess of $150 million. AIM has voluntarily agreed
to waive advisory fees of Series I and Series II shares to the extent necessary
to limit the expenses (excluding Rule 12b-1 plan fees, if any, interest, taxes,
fund merger and reorganization expenses, extraordinary items, including other
items designated as such by the Board of Trustees and increases in expenses due
to expense offset arrangements, if any) of each Series to 1.30%. 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. For the year
ended December 31, 2003, AIM waived fees of $1,157.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $240,713 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $7,132 for such
services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $5,590.
Certain officers and trustees of the Trust are 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $1,935,047 $18,353,521 $20,288,568 $ -- $ -- $25,605 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 1,935,047 18,353,521 20,288,568 -- -- 24,585 --
=================================================================================================================================
$3,870,094 $36,707,042 $40,577,136 $ -- $ -- $50,190 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$1 and reductions in custodian fees of $1 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $2.
AIM V.I. BALANCED FUND
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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 plans.
During the year ended December 31, 2003, the Fund paid legal fees of $3,736
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ----------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 656 89,697
- ----------------------------------------------------------
Closed (386) (46,805)
- ----------------------------------------------------------
Exercised (243) (41,461)
- ----------------------------------------------------------
Expired (27) (1,431)
==========================================================
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------
Distributions from ordinary income $1,877,126 $2,287,776
_______________________________________________________________
===============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
- -----------------------------------------------------------
Undistributed ordinary income $ 1,462,542
- -----------------------------------------------------------
Unrealized appreciation -- investments 4,084,279
- -----------------------------------------------------------
Temporary book/tax differences (30,556)
- -----------------------------------------------------------
Capital loss carryforward (25,375,765)
- -----------------------------------------------------------
Shares of beneficial interest 121,657,583
===========================================================
Total net assets $101,798,083
___________________________________________________________
===========================================================
</Table>
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 the tax deferral of losses
on wash sales, bond premium amortization and the treatment of defaulted bonds.
The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(2,225).
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund utilized $2,194,166 of capital loss carryforward in the current
period to offset net realized capital gain for Federal Income Tax Purposes.
AIM V.I. BALANCED FUND
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2008 $ 89,585
- -----------------------------------------------------------
December 31, 2009 9,069,227
- -----------------------------------------------------------
December 31, 2010 16,216,953
===========================================================
Total capital loss carryforward $25,375,765
___________________________________________________________
===========================================================
</Table>
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, 2003 was $119,313,165 and $111,630,409, 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 $548,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT
SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $4,288,779
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (202,275)
============================================================
Net unrealized appreciation of investment
securities $4,086,504
____________________________________________________________
============================================================
Cost of investments for tax purposes is $98,305,062.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of foreign currency transactions on December 31, 2003,
undistributed net investment income was increased by $147,652, and undistributed
net realized gains decreased by $147,652. This reclassification had no effect on
the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,385,995 $ 12,859,662 1,829,800 $ 17,783,774
- ----------------------------------------------------------------------------------------------------------------------
Series II* 340,652 3,145,330 91,699 849,224
======================================================================================================================
Issued as reinvestment of dividends:
Series I 183,618 1,803,131 259,028 2,269,083
- ----------------------------------------------------------------------------------------------------------------------
Series II* 7,566 73,995 2,139 18,693
======================================================================================================================
Reacquired:
Series I (1,271,451) (11,540,690) (2,334,627) (21,875,302)
- ----------------------------------------------------------------------------------------------------------------------
Series II* (16,869) (153,607) (9,890) (92,776)
======================================================================================================================
629,511 $ 6,187,821 (161,851) $ (1,047,304)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Series II shares commenced sales on January 24, 2002.
AIM V.I. BALANCED FUND
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.75 $ 10.84 $ 12.46 $ 13.04 $ 11.14
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14(a) 0.18(a) 0.27(a)(b) 0.37(a) 0.31(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.29 (2.02) (1.70) (0.93) 1.83
================================================================================================================================
Total from investment operations 1.43 (1.84) (1.43) (0.56) 2.14
================================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.25) (0.19) (0.02) (0.17)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.07)
================================================================================================================================
Total distributions (0.19) (0.25) (0.19) (0.02) (0.24)
================================================================================================================================
Net asset value, end of period $ 9.99 $ 8.75 $ 10.84 $ 12.46 $ 13.04
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 16.36% (17.02)% (11.43)% (4.28)% 19.31%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $97,665 $82,866 $105,395 $85,693 $48,307
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets: 1.11%(d) 1.17% 1.12% 1.10% 1.21%(e)
================================================================================================================================
Ratio of net investment income to average net assets 1.47%(d) 1.90% 2.37%(b) 2.80% 2.66%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 131% 90% 55% 49% 57%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.29 and the ratio of net investment income to average net
assets would have been 2.52%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, Per share and ratios for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
(c) Included adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(d) Ratios are based on average daily net assets of $87,106,766.
(e) After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or reimbursements was 1.31%.
AIM V.I. BALANCED FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------
JANUARY 24, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.73 $ 10.70
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12(a) 0.14(a)
- -------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.29 (1.86)
=================================================================================================
Total from investment operations 1.41 (1.72)
=================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.25)
=================================================================================================
Net asset value, end of period $ 9.95 $ 8.73
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 16.15% (16.12)%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,133 $ 733
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets 1.36%(c) 1.42%(d)
=================================================================================================
Ratio of net investment income to average net assets 1.22%(c) 1.65%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 131% 90%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $2,236,132.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. BALANCED FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. BALANCED FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Balanced Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the years or periods in the five year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Balanced Fund as of December 31, 2003, 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 years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. BALANCED FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and Fund Management
Company (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. and
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
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance investment company);
Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Group, Administaff, Discovery
Trustee Inc. (government affairs company) and Texana Timber Global Education Fund
LP (sustainable forestry company) (non-profit)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. BALANCED FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations None
Trustee Hines Interests Limited Partnership (real estate
development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General Counsel,
Liberty Financial Companies, Inc.; and Senior Vice
President and General Counsel, Liberty Funds Group,
LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and President, N/A
Vice President Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 26.60% is eligible for the dividends received deduction for
corporations.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 9.84% was derived from U.S. Treasury
Obligations.
AIM V.I. BALANCED FUND
AIM V.I. BASIC VALUE FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. BASIC VALUE FUND seeks to provide long-term growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. BASIC VALUE FUND
AIM V.I. BASIC VALUE FUND
OUTPERFORMS BENCHMARKS
AIM V.I. Basic Value Fund returned 33.63% exposed to the best performing sectors When the stock market is viewed
for Series I shares and 33.29% for Series and our stock selection within these through this intrinsic-value lens, it
II shares for the fiscal year ended sectors generated above-average returns. becomes clear that investment risk has
December 31, 2003. These results exceeded little to do with historical prices and
the Russell 1000--Registered Trademark-- The sectors that had the most material popular volatility measures. In fact, we
Value Index, the S&P 500--Registered impact on our relative outperformance believe that risk is often inversely
Trademark-- Index and the Lipper were financials, technology, and health related to price. This creates a paradox:
Large-Cap Value Index, which returned care. The only material relative investment risk may, in fact, be low
30.03%, 28.67% and 28.00%, respectively. underperformance was in energy and precisely where it appears high. The
materials. Our only exposure to this bridge across this gap in market
MARKET CONDITIONS segment of the market was through our perception is a long-term investment
investments in oil service stocks, and horizon. As price declines significantly
Amid a backdrop of generally improving the performance of these investments was below intrinsic value, what is known as a
economic conditions, the equity market virtually flat despite strong returns in "margin of safety" is created. While this
staged a strong rally. Based on our other commodity leveraged stocks. discount to value may be of no use to a
valuation estimates during 2002, we short-term trader, it is highly relevant
believed the most compelling valuation YOUR FUND to the long-term investor. If this margin
opportunities were concentrated in of safety is large enough, it creates an
companies leveraged to an economic We manage the fund based on the attractive risk-to reward equation that
recovery scenario. As a result, the philosophy that business value is suggests significantly higher upside
changes we made to the portfolio in 2002 separate from, but eventually determines, potential with a lower risk of a
were many of the key drivers of our 2003 market value. Our goal is to achieve permanent loss of capital.
performance. growth of capital by investing primarily
in U.S. companies we believe are As we suggested last year, we thought
Specifically, the best performing significantly undervalued on an absolute this was the case with Tyco International
market sectors during 2003 were those basis. The AIM Basic Value philosophy and Computer Associates International.
that are most likely to benefit from an recognizes businesses have an intrinsic Those and other controversial but
economic recovery -- consumer value that is independent of the market, significantly undervalued stocks that we
discretionary, financials and technology. stock prices are more volatile than purchased during 2002 were big drivers of
Health care, consumer staples and other business values, investors often our outperformance this year. A few fund
quasi-economically defensive groups did overreact to negative news, and a holdings of interest include:
not perform as well. Your fund long-term investment horizon is required.
outperformed the market because we were o Tyco International is now under new
slightly more management, and is working to move
beyond the controversy associated with
its former CEO. The company remains
one of our largest holdings.
The stock performed well during 2003
following
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Tyco International Ltd. (Bermuda) 4.4% 1. Advertising 5.6% Total returns 12/31/02-12/31/03,
2. Computer Associates International, 2. Thrifts & Mortgage Finance 5.5 excluding product issuer charges
Inc. 3.8 3. Diversified Commercial Services 4.7
3. Fannie Mae 3.2 4. Data Processing & Outsourced Series I Shares 33.63%
4. Waste Management, Inc. 3.0 Services 4.6 Series II Shares 33.29
5. Citigroup, Inc. 2.9 5. Investment Banking & Brokerage 4.6 S&P 500 Index 28.67
6. Omnicom Group Inc. 2.9 6. Health Care Distributors 4.6 (new Broad Market Index)
7. Interpublic Group of Cos., Inc. 7. Industrial Conglomerates 4.4 Russell 1000 Value Index 30.03
(The) 2.7 8. Pharmaceuticals 4.3 (Style-Specific Index)
8. First Data Corp. 2.7 9. Building Products 4.2 Lipper Large-Cap Value Fund Index 28.00
9. Cendant Corp. 2.6 10. Systems Software 3.8 (Peer Group Index)
10. Bank One Corp. 2.6 Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 48
TOTAL NET ASSETS $563.3 million
====================================================================================================================================
</Table>
<Table>
=========================================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
BRET W. STANLEY, LEAD MANAGER
R. CANON COLEMAN II
MATTHEW W. SEINSHEIMER
MICHAEL J. SIMON
ASSISTED BY THE BASIC VALUE TEAM
=========================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that
the fund will continue to hold any particular security.
</Table>
<Table>
AIM V.I. BASIC VALUE FUND
better operating results and remains RESULTS OF A $10,000 INVESTMENT
undervalued in our opinion. 9/10/01-12/31-03
Index data from 8/31/01
o Computer Associates International is
one of the world's largest software [LINE CHART]
companies and was our top-performing
investment in 2003. The company RUSSELL AIM V.I. AIM V.I. LIPPER
continues to produce substantial and 1000 BASIC BASIC LARGE-CAP
stable cash flow, and we believe the VALUE VALUE VALUE VALUE FUND S&P 500
company remains undervalued as the INDEX FUND-SERIES I FUND-SERIES II INDEX INDEX
accounting concerns that created our
investment opportunity continue to
abate. 9/10/2001 10000 10000 10000 10000 10000
12/31/2001 9982 10263 10258 10024 10175
o Fannie Mae was among our more 3/31/2002 10390 10723 10717 10216 10203
significant new investments during 6/30/2002 9505 9281 9267 9111 8837
2003. Like other opportunities before, 9/30/2002 7721 7418 7406 7411 7311
Fannie Mae's depressed value is the 12/31/2002 8432 7988 7966 8051 7927
result of a hostile political 3/31/2003 8022 7497 7476 7658 7677
environment, accounting complexity, 6/30/2003 9408 9038 9007 8917 8858
and management and accounting troubles 9/30/2003 9602 9428 9397 9090 9093
at its competitor, Freddie Mac. 12/31/2003 10964 10676 10618 10306 10199
IN CLOSING
Source: Lipper, Inc.
While 2003 was a strong year it needs to
be considered in a longer-term context. Past performance cannot guarantee comparable future results.
Last year, we estimated that the fund Current performance may be lower or ABOUT INDEXES USED IN THIS REPORT
had a near-record discount between higher than the performance data quoted.
year-end market value and our estimate of Past performance cannot guarantee The unmanaged Standard & Poor's Composite
portfolio intrinsic value. Following a comparable future results. Due to Index of 500 Stocks (the S&P
34% increase in market value this year, significant market volatility, results of 500--Registered Trademark--) is an index
we believe this discount was clearly more an investment made today may differ of common stocks frequently used as a
modest as of the end of 2003. In the substantially from the historical general measure of U.S. stock market
meantime, our money remains invested performance shown. Please see your performance.
alongside your money. financial advisor for more current
performance. Fund performance figures are The unmanaged Russell 1000--Registered
---------- historical, and they reflect fund Trademark-- Value Index is a subset of
expenses, the reinvestment of the unmanaged Russell 1000--Registered
distributions and changes in net asset Trademark-- Index, which represents the
AVERAGE ANNUAL TOTAL RETURNS value. The fund's investment return and performance of the stocks of
- ----------------------------------------- principal value will fluctuate, so an large-capitalization companies; the Value
As of 12/31/03 investor's shares, when redeemed, may be subset measures the performance of
worth more or less than their original Russell 1000 companies with lower
SERIES I SHARES cost. price/book ratios and lower forecasted
Inception (9/10/01) 2.88% growth values.
1 Year 33.63 AIM Variable Insurance Funds are
offered through insurance company The unmanaged Lipper Large-Cap Value
SERIES II SHARES separate accounts to fund variable Fund Index represents an average of the
Inception (9/10/01) 2.63 annuity contracts and variable life performance of the 30 largest
1 Year 33.29 insurance policies, and through certain large-capitalization value equity funds
pension or retirement plans. tracked by Lipper, Inc., an independent
mutual fund performance monitor.
Performance figures given represent
the fund and are not intended to reflect A direct investment cannot be made in
actual variable product values. They do an index. Unless otherwise indicated,
not reflect sales charges, expenses and index results include reinvested
fees at the separate account level. Sales dividends, and they do not reflect sales
charges, expenses and fees, which are charges. Performance of an index of funds
determined by the product issuers, will reflects fund expenses; performance of a
vary and will lower the total return. market index does not.
PRINCIPAL RISKS OF INVESTING IN THE FUND Industry classifications used in this
report are generally according to the
By prospectus, the fund may invest up to Global Industry Classification Standard,
25% of its total assets in foreign which was developed by and is the
securities. International investing exclusive property and a service mark of
presents certain risks not associated Morgan Stanley Capital International Inc.
with investing solely in the United and Standard & Poor's.
States. These include risks relating to
fluctuations in the value of the U.S. A description of the policies and
dollar relative to the values of other procedures that the Fund uses to
currencies, the custody arrangements made determine how to vote proxies relating to
for the fund's foreign holdings, portfolio securities is available without
differences in accounting, political charge, upon request, by calling
risks and the lesser degree of public 800-959-4246, or on the AIM Web site,
information required to be provided by AIMinvestments.com.
non-U.S. companies.
VIBVA-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS-96.63%
ADVERTISING-5.63%
Interpublic Group of Cos., Inc. (The)(a) 984,200 $ 15,353,520
- ------------------------------------------------------------------------
Omnicom Group Inc. 187,150 16,343,809
========================================================================
31,697,329
========================================================================
AEROSPACE & DEFENSE-1.50%
Honeywell International Inc. 252,900 8,454,447
========================================================================
APPAREL RETAIL-2.45%
Gap, Inc. (The) 593,400 13,772,814
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-3.01%
Bank of New York Co., Inc. (The) 362,000 11,989,440
- ------------------------------------------------------------------------
Janus Capital Group Inc. 300,850 4,936,948
========================================================================
16,926,388
========================================================================
BUILDING PRODUCTS-4.18%
American Standard Cos. Inc.(a) 126,050 12,693,235
- ------------------------------------------------------------------------
Masco Corp. 395,850 10,850,248
========================================================================
23,543,483
========================================================================
COMMUNICATIONS EQUIPMENT-1.28%
Motorola, Inc. 511,750 7,200,322
========================================================================
CONSUMER ELECTRONICS-1.26%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 244,900 7,124,141
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.63%
Ceridian Corp.(a) 529,550 11,088,777
- ------------------------------------------------------------------------
First Data Corp. 364,650 14,983,468
========================================================================
26,072,245
========================================================================
DIVERSIFIED BANKS-2.56%
Bank One Corp. 316,000 14,406,440
========================================================================
DIVERSIFIED CAPITAL MARKETS-2.02%
J.P. Morgan Chase & Co. 310,150 11,391,809
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.70%
Cendant Corp.(a) 647,450 14,418,712
- ------------------------------------------------------------------------
H&R Block, Inc. 218,050 12,073,429
========================================================================
26,492,141
========================================================================
ELECTRIC UTILITIES-0.35%
FirstEnergy Corp. 56,500 1,988,800
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-2.28%
Waters Corp.(a) 386,450 $ 12,814,682
========================================================================
EMPLOYMENT SERVICES-0.84%
Robert Half International Inc.(a) 201,550 4,704,177
========================================================================
ENVIRONMENTAL SERVICES-2.99%
Waste Management, Inc. 568,900 16,839,440
========================================================================
FOOD RETAIL-3.10%
Kroger Co. (The)(a) 667,450 12,354,500
- ------------------------------------------------------------------------
Safeway Inc.(a) 232,900 5,102,839
========================================================================
17,457,339
========================================================================
GENERAL MERCHANDISE STORES-2.23%
Target Corp. 326,750 12,547,200
========================================================================
HEALTH CARE DISTRIBUTORS-4.57%
Cardinal Health, Inc. 211,100 12,910,876
- ------------------------------------------------------------------------
McKesson Corp. 399,700 12,854,352
========================================================================
25,765,228
========================================================================
HEALTH CARE FACILITIES-1.99%
HCA Inc. 260,700 11,199,672
========================================================================
HEALTH CARE SERVICES-2.00%
IMS Health Inc. 452,850 11,257,851
========================================================================
HOTELS, RESORTS & CRUISE LINES-1.80%
Starwood Hotels & Resorts Worldwide, Inc. 282,000 10,143,540
========================================================================
INDUSTRIAL CONGLOMERATES-4.37%
Tyco International Ltd. (Bermuda) 927,950 24,590,675
========================================================================
INDUSTRIAL MACHINERY-1.24%
Parker Hannifin Corp. 117,250 6,976,375
========================================================================
INVESTMENT BANKING & BROKERAGE-4.61%
Merrill Lynch & Co., Inc. 229,700 13,471,905
- ------------------------------------------------------------------------
Morgan Stanley 216,350 12,520,175
========================================================================
25,992,080
========================================================================
LEISURE PRODUCTS-0.60%
Mattel, Inc. 176,300 3,397,301
========================================================================
MANAGED HEALTH CARE-1.84%
UnitedHealth Group Inc. 177,900 10,350,222
========================================================================
MOVIES & ENTERTAINMENT-1.97%
Walt Disney Co. (The) 475,050 11,082,917
========================================================================
</Table>
AIM V.I. BASIC VALUE FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS DRILLING-3.44%
ENSCO International Inc. 311,450 $ 8,462,097
- ------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 455,200 10,929,352
========================================================================
19,391,449
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.49%
Halliburton Co. 226,800 5,896,800
- ------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 226,550 8,155,800
========================================================================
14,052,600
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.90%
Citigroup Inc. 336,950 16,355,553
========================================================================
PHARMACEUTICALS-4.32%
Aventis S.A. (France) 190,700 12,569,792
- ------------------------------------------------------------------------
Wyeth 277,300 11,771,385
========================================================================
24,341,177
========================================================================
PROPERTY & CASUALTY INSURANCE-2.33%
ACE Ltd. (Cayman Islands) 316,300 13,101,146
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-1.86%
Novellus Systems, Inc.(a) 249,400 $ 10,487,270
========================================================================
SYSTEMS SOFTWARE-3.75%
Computer Associates International, Inc. 772,800 21,128,352
========================================================================
THRIFTS & MORTGAGE FINANCE-5.54%
Fannie Mae 236,800 17,774,208
- ------------------------------------------------------------------------
MGIC Investment Corp. 113,050 6,437,067
- ------------------------------------------------------------------------
Radian Group Inc. 143,500 6,995,625
========================================================================
31,206,900
========================================================================
Total Common Stocks (Cost $443,687,861) 544,253,505
========================================================================
MONEY MARKET FUNDS-4.80%
Liquid Assets Portfolio(b) 13,519,448 13,519,448
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 13,519,448 13,519,448
========================================================================
Total Money Market Funds (Cost
$27,038,896) 27,038,896
========================================================================
TOTAL INVESTMENTS-101.43% (Cost $470,726,757) 571,292,401
========================================================================
OTHER ASSETS LESS LIABILITIES-(1.43%) (8,032,084)
========================================================================
NET ASSETS-100.00% $563,260,317
________________________________________________________________________
========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BASIC VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$443,687,861) $544,253,505
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $27,038,896) 27,038,896
- -------------------------------------------------------------
Receivables for:
Investments sold 4,374,906
- -------------------------------------------------------------
Fund shares sold 1,021,132
- -------------------------------------------------------------
Dividends 675,459
- -------------------------------------------------------------
Investment for deferred compensation &
retirement plans 15,851
=============================================================
Total assets 577,379,749
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 12,967,622
- -------------------------------------------------------------
Fund shares reacquired 626,911
- -------------------------------------------------------------
Deferred compensation & retirement plans 18,498
- -------------------------------------------------------------
Accrued administrative services fees 303,777
- -------------------------------------------------------------
Accrued distribution fees -- Series II 142,031
- -------------------------------------------------------------
Accrued transfer agent fees 3,769
- -------------------------------------------------------------
Accrued operating expenses 56,824
=============================================================
Total liabilities 14,119,432
=============================================================
Net assets applicable to shares outstanding $563,260,317
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $470,847,891
- -------------------------------------------------------------
Undistributed net investment income (loss) (11,028)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (8,141,451)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 100,564,905
=============================================================
$563,260,317
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $309,383,683
_____________________________________________________________
=============================================================
Series II $253,876,634
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 29,025,564
_____________________________________________________________
=============================================================
Series II 23,918,684
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 10.66
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 10.61
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$7,936) $ 3,490,108
- -------------------------------------------------------------
Dividends from affiliated money market funds 197,530
=============================================================
Total investment income 3,687,638
=============================================================
EXPENSES:
Advisory fees 2,541,285
- -------------------------------------------------------------
Administrative services fees 948,718
- -------------------------------------------------------------
Custodian fees 63,168
- -------------------------------------------------------------
Distribution fees -- Series II 424,311
- -------------------------------------------------------------
Transfer agent fees 16,564
- -------------------------------------------------------------
Trustees' fees 14,719
- -------------------------------------------------------------
Other 47,231
=============================================================
Total expenses 4,055,996
=============================================================
Less: Fees waived and expense offset
arrangements (3,402)
=============================================================
Net expenses 4,052,594
=============================================================
Net investment income (loss) (364,956)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (2,594,591)
- -------------------------------------------------------------
Foreign currencies 14,178
=============================================================
(2,580,413)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 116,480,999
- -------------------------------------------------------------
Foreign currencies (739)
=============================================================
116,480,260
=============================================================
Net gain from investment securities and foreign
currencies 113,899,847
=============================================================
Net increase in net assets resulting from
operations $113,534,891
_____________________________________________________________
=============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BASIC VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (364,956) $ 86,137
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (2,580,413) (5,434,212)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 116,480,260 (16,952,445)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 113,534,891 (22,300,520)
==========================================================================================
Distributions to shareholders from net investment income:
Series I (89,726) (1,149)
- ------------------------------------------------------------------------------------------
Series II -- (1,176)
==========================================================================================
Decrease in net assets resulting from distributions (89,726) (2,325)
==========================================================================================
Share transactions-net:
Series I 152,189,833 95,319,632
- ------------------------------------------------------------------------------------------
Series II 95,111,846 109,345,836
==========================================================================================
Net increase in net assets resulting from share
transactions 247,301,679 204,665,468
==========================================================================================
Net increase in net assets 360,746,844 182,362,623
==========================================================================================
NET ASSETS:
Beginning of year 202,513,473 20,150,850
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(11,028) and $83,090 for 2003 and 2002,
respectively) $563,260,317 $202,513,473
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Basic Value 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
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. 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.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized by the Board
AIM V.I. BASIC VALUE FUND
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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
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.
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 AIM at the annual rate of 0.725% of the first
$500 million of the Fund's average daily net assets, plus 0.70% of the Fund's
average daily net assets on the next $500 million, plus 0.675% of the Fund's
average daily net assets on the next $500 million, plus 0.65% of the Fund's
average daily net assets in excess of $1.5 billion. AIM has voluntarily agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
Voluntary expense limitations may be modified or discontinued at any time
without further notice to investors. 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. For the year ended December 31, 2003, AIM
waived fees of $3,341.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $948,718 for such services,
of which AIM retained $90,620 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $19,126 for
such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $424,311.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. BASIC VALUE FUND
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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ 8,169,237 $ 99,560,980 $ (94,210,769) $ -- $13,519,448 $ 99,902 $ --
- --------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio 8,169,237 99,560,980 (94,210,769) -- 13,519,448 97,628 --
================================================================================================================================
$16,338,474 $199,121,960 $(188,421,538) $ -- $27,038,896 $197,530 $ --
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits from periodic overnight cash
balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$1 and reductions in custodian fees of $60 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $61.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $4,305
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- -------------------------------------------------------------
Distributions paid from ordinary income $89,726 $2,325
_____________________________________________________________
=============================================================
</Table>
AIM V.I. BASIC VALUE FUND
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 99,203,703
- -------------------------------------------------------------
Temporary book/tax differences (11,028)
- -------------------------------------------------------------
Capital loss carryforward (6,780,249)
- -------------------------------------------------------------
Shares of beneficial interest 470,847,891
=============================================================
Total net assets $563,260,317
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales. The tax-basis unrealized appreciation on investments amount
includes appreciation (depreciation) on foreign currencies of $(739).
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2009 $ 4,100
- -----------------------------------------------------------
December 31, 2010 5,253,988
- -----------------------------------------------------------
December 31, 2011 1,522,161
===========================================================
Total capital loss carryforward $6,780,249
___________________________________________________________
===========================================================
</Table>
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, 2003 was $297,680,959 and $62,033,960, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $100,549,101
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,344,659)
=============================================================
Net unrealized appreciation of investment
securities $ 99,204,442
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $472,087,959.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of excise taxes, excess
distributions, net operating losses and foreign currency transactions, on
December 31, 2003, undistributed net investment income was increased by
$360,564, undistributed net realized gain (loss) decreased by $14,179 and shares
of beneficial interest decreased by $346,385. This reclassification had no
effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 19,313,572 $174,114,472 11,859,976 $108,027,378
- ----------------------------------------------------------------------------------------------------------------------
Series II 12,433,808 110,104,487 13,491,664 112,789,473
======================================================================================================================
Issued as reinvestment of dividends:
Series I 8,805 89,726 143 1,149
- ----------------------------------------------------------------------------------------------------------------------
Series II -- -- 147 1,176
======================================================================================================================
Reacquired:
Series I (2,570,676) (22,014,365) (1,501,923) (12,708,895)
- ----------------------------------------------------------------------------------------------------------------------
Series II (1,653,745) (14,992,641) (403,230) (3,444,813)
======================================================================================================================
27,531,764 $247,301,679 23,446,777 $204,665,468
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
AIM V.I. BASIC VALUE FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------
SEPTEMBER 10, 2001
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
---------------------- DECEMBER 31,
2003 2002 2001
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.98 $ 10.25 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) 0.02(a) 0.01
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.68 (2.29) 0.25
==========================================================================================================
Total from investment operations 2.68 (2.27) 0.26
==========================================================================================================
Less dividends from net investment income (0.00) (0.00) (0.01)
==========================================================================================================
Net asset value, end of period $ 10.66 $ 7.98 $ 10.25
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 33.63% (22.15)% 2.63%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $309,384 $97,916 $19,638
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets(c) 1.04%(d) 1.16% 1.27%(e)
==========================================================================================================
Ratio of net investment income to average net assets 0.01%(d) 0.18% 0.28%(e)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(f) 18% 22% 4%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) After fee waivers. The ratio of expenses to average net assets before
fee waivers was 2.61% for the period September 10, 2001 (date operations
commenced) to December 31, 2001.
(d) Ratios are based on average daily net assets of $180,797,692.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
SERIES II
------------------------------------------------
SEPTEMBER 10, 2001
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
----------------------- DECEMBER 31,
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.96 $ 10.25 $10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.01)(a) 0.00
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.67 (2.28) 0.26
==============================================================================================================
Total from investment operations 2.65 (2.29) 0.26
==============================================================================================================
Less dividends from net investment income (0.00) (0.00) (0.01)
==============================================================================================================
Net asset value, end of period $ 10.61 $ 7.96 $10.25
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 33.29% (22.34)% 2.58%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $253,877 $104,597 $ 513
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets(c) 1.29%(d) 1.41% 1.44%(e)
==============================================================================================================
Ratio of net investment income (loss) to average net assets (0.24)%(d) (0.07)% 0.12%(e)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate(e) 18% 22% 4%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) After fee waivers. The ratio of expenses to average net assets before
fee waivers was 2.88% for the period September 10, 2001 (date operations
commenced) to December 31, 2001.
(d) Ratios are based on average daily net assets of $169,724,366.
(e) Annualized.
(f) Not annualized for periods less than one year.
AIM V.I. BASIC VALUE FUND
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions
AIM V.I. BASIC VALUE FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
of the Federal and state securities laws; (ii) violation of various provisions
of the Employee Retirement Income Security Act ("ERISA"); (iii) breach of
fiduciary duty; and (iv) breach of contract. The lawsuits have been filed in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; rescission; accounting for wrongfully gotten gains, profits and
compensation; injunctive relief; disgorgement; equitable relief; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. BASIC VALUE FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Basic Value Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the two years in the period then ended and for
the period September 10, 2001 (commencement of operations) through December 31,
2001. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Basic Value Fund as of December 31, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the two years in
the period then ended and for the period September 10, 2001 (commencement of
operations) through December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. BASIC VALUE FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios. 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and
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
- ----------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered
Formerly: Partner, law firm of Baker & McKenzie investment company)
- ----------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited
Trustee (technology consulting company) (insurance company);
and Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman)
Ltd. (private investment and management) and (registered
Magellan Insurance Company investment company);
Annuity and Life Re
Formerly: Director, President and Chief Executive (Holdings), Ltd.
Officer, Volvo Group North America, Inc.; Senior (insurance company)
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 Century Administaff,
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund
(non-profit)
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. BASIC VALUE FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered
investment company)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, AIM
Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice President,
A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. BASIC VALUE FUND
AIM V.I. BLUE CHIP FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. BLUE CHIP FUND seeks to provide long-term
growth of capital, and secondarily, current income.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. BLUE CHIP FUND
FUND RETURN EXCEEDS 24% technology holdings had risen to 23.9%
FOR FISCAL YEAR of the fund's portfolio. In addition to
the fund's overweight position and the
For the year ended December 31, 2003, The nation's gross domestic product, sector's excellent performance, many of
Series I shares of the fund returned generally considered the broadest the fund's holdings in information
25.14%. Series II Shares returned measure of economic activity, expanded technology outperformed the index's
24.81%. The fund's broad-based and at an annualized rate of 1.4% in the sector average.
style-specific index, the S&P first quarter, 3.1% in the second
500--Registered Trademark-- Index, quarter, 8.2% in the third quarter, and Other sectors that contributed to
returned 28.67%, while the Lipper 4.0% in the fourth quarter of 2003. fund performance for the year included
Large-Cap Core Fund Index returned financials, consumer discretionary and
24.80%. Several factors contributed to However, the job market, while health care. Although all sectors in the
the fund's underperformance of its improving, continued to be weak, as the S&P 500 Index produced positive returns
broad-based index, and these factors are nation's unemployment rate stood at 5.7% for the year, the health care sector was
addressed in the "Your fund" section. at the close of the year. the third worst-performing sector.
However, the average return for the
MARKET CONDITIONS YOUR FUND fund's holdings in the health care
sector was higher than the sector
The S&P 500 Index declined at the Throughout the fiscal year, we adhered average for the index, and health care
beginning of 2003, dropping to its to our strategy of diversification provided solid performance for the fund.
lowest level on March 11. The index then across sectors. At the close of the
rallied through the end of the reporting period, the fund was invested in all Sectors that detracted from fund
period. sectors of the S&P 500 Index. However, performance included consumer staples
the fund's holdings resulted from each and energy. Consumer staples was the
As of the close of the year, individual stock having met our index's second worst-performing sector.
approximately 64% of the companies in selection criteria, independent of its As the economy improved, investors
the S&P 500 Index had reported sector location. shifted out of consumer staples and into
third-quarter earnings that exceeded more economically sensitive sectors. The
analysts' expectations while As in our benchmark index, the sector fund's holdings in the energy sector
approximately 20% had reported earnings with the best performance for the fund also underperformed the sector average
that met those estimates. was information technology. We started in the index.
the year with an overweight position in
All sectors of the index recorded technology compared to the S&P 500 The fund was underweight in the
gains for the fiscal year. Information Index. Applying current industry and industrials sector, so even though its
technology, materials and consumer sector classifications to the fund's industrials stocks' average performance
discretionary were the top-performing holdings as of December 31, 2002, 18.5% essentially matched the index's sector
sectors, while telecommunications was in information technology. average, the weight of the sector's
services, consumer staples and health contribution was more helpful to the
care were the weakest-performing As the year progressed, earnings index.
sectors. Small- and mid-cap stocks improvement in the sector increased, and
generally outperformed large-cap stocks we added to our holdings. At the end of
for the year. 2003, information
</Table>
<Table>
<Caption>
===================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- -----------------------------------------------------------------------------------------------------------------------------------
1. Citigroup Inc. 3.7% 1. Systems Software 6.6% Total returns 12/31/02-12/31/03,
2. Microsoft Corp. 3.5 2. Semiconductors 6.5 excluding product issuer charges
3. Cisco Systems, Inc. 3.1 3. Pharmaceuticals 6.2
4. Pfizer Inc. 2.7 4. Health Care Equipment 4.8 Series I Shares 25.14%
5. Wal-Mart Stores, Inc. 2.7 5. Investment Banking & Series II Shares 24.81
6. Intel Corp. 2.6 Brokerage 4.6 S&P 500 Index
7. General Electric Co. 2.5 6. Other Diversified Financial (Broad Market and Style-
8. Exxon Mobil Corp. 2.3 Services 3.7 specific Index) 28.67
9. American International 7. Industrial Conglomerates 3.7 Lipper Large-Cap Core Fund
Group, Inc. 2.0 8. Communications Equipment 3.1 Index (Peer Group Index) 24.80
10. Procter & Gamble Co. (The) 2.0 9. Consumer Finance 2.8 Source: Lipper, Inc.
10. Household Products 2.7 TOTAL NUMBER OF HOLDINGS* 90
TOTAL NET ASSETS $123.8 MILLION
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
</Table>
<Table>
<Caption>
AIM V.I. BLUE CHIP FUND
As previously stated, small-cap RESULTS OF A $10,000 INVESTMENT
stocks generally outperformed mid-cap 12/29/99-12/31/03
stocks, and mid-cap stocks outperformed Index data from 12/31/99
large-cap stocks. This may also explain
why the S&P 500 Index outperformed the AIM V.I. BLUE CHIP LIPPER LARGE-CAP
fund. The Standard & Poor's Web site FUND-SERIES I CORE FUND INDEX S&P 500 INDEX
states that although the index "focuses 12/29/1999 10000 10000 10000
on the large-cap segment of the market, 6/30/2000 10460 10189 9957
with over 89% coverage of U.S. equities, 12/31/2000 9181 9263 9090
it is also an ideal proxy for the total 6/30/2001 7790 8541 8481
market." As of fiscal yearend, the 12/31/2001 7112 8074 8010
average company in which the fund was 6/30/2002 5891 7076 6957
invested had a market capitalization 12/31/2002 5251 6360 6241
nearly three times ($61 billion) that of 6/30/2003 5821 7005 6974
the average S&P 500 company ($20.6 12/31/2003 6572 7937 8030
billion).
Source: Lipper, Inc.
Several of the top contributors to
fund performance for the year were Past performance cannot guarantee comparable future results.
long-time information technology sector
holdings, including Cisco and Intel.
Cisco provides equipment that connects AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL RISKS OF INVESTING IN THE FUND
networks and powers the Internet. In its ---------------------------------------- The fund may invest up to 25% of its
earnings report released in November As of 12/31/03 total assets in foreign securities.
2003, the company reported net sales of International investing presents certain
$5.1 billion for the quarter, an SERIES I SHARES risks not associated with investing
increase of 8.5% over the previous Inception (12/29/99) -9.95% solely in the United States. These
quarter. 1 Year 25.14 include risks relating to fluctuations
in the value of the U.S. dollar relative
Intel, the world's largest maker of SERIES II SHARES* to the values of other currencies, the
semiconductors, reported earnings of 25 Inception -10.18% custody arrangements made for the fund's
cents per share for the quarter ended 1 year 24.81 foreign holdings, differences in
September 30, 2003, compared to 10 cents accounting, political risks and the
per share for the same quarter of the *Series II shares were first offered lesser degree of public information
previous year. 3/13/02. Returns prior to that date are required to be provided by non-U.S.
hypothetical results based on the companies.
HCA and Duke Energy were among performance of Series I shares
holdings that detracted from fund (inception date 12/29/99), adjusted to ABOUT INDEXES USED IN THIS REPORT
performance for the year. HCA is a reflect Series II 12b-1 fees. The Series The unmanaged Standard & Poor's
leading hospital management company, I and Series II shares invest in the Composite Index of 500 Stocks (the S&P
operating more than 200 hospitals and same portfolio of securities and will 500--Registered Trademark-- Index) is an
surgery centers. Litigation against the have substantially similar performance, index of common stocks frequently used
company affected its earnings, and the except to the extent that expenses borne as a general measure of U.S. stock
fund no longer owns shares in the by each class differ. market performance.
company.
Current performance may be lower or The unmanaged Lipper Large-Cap Core
Duke Energy's unregulated wholesale higher than the performance data quoted. Fund Index represents an average of the
operations suffered as a result of weak Past performance cannot guarantee performance of the 30 largest
pricing power within the U.S. power comparable future results. Due to large-capitalization core equity funds
market. We had sold our shares in the significant market volatility, results tracked by Lipper, Inc., an independent
company by June 30, 2003. of an investment made today may differ mutual fund performance monitor.
substantially from the historical
IN CLOSING performance shown. Please see your A direct investment cannot be made in
financial advisor for more current an index. Unless otherwise indicated,
Throughout the year, we continued to performance. index results include reinvested
focus on long-term market leaders from dividends, and they do not reflect sales
all market sectors. Earnings reports The fund's performance figures are charges. Performance of an index of
have substantiated our confidence in the historical, and they reflect fund funds reflects fund expenses;
fund's portfolio, and we are pleased to expenses, the reinvestment of performance of a market index does not.
report solid returns for the year. distributions and changes in net asset
value. Performance data quoted represent Industry classifications used in this
past performance, and the investment report are generally according to the
return and principal value will Global Industry Classification Standard,
fluctuate, so an investor's shares, when which was developed by and is the
redeemed, may be worth more or less than exclusive property and a service mark of
their original cost. Morgan Stanley Capital International
Inc. and Standard & Poor's.
AIM Variable Insurance Funds are
offered through insurance company A description of the policies and
separate accounts to fund variable procedures that the Fund uses to
annuity contracts and variable life determine how to vote proxies relating
insurance policies, and through certain to portfolio securities is available
pension or retirement plans. Performance without charge, upon request, by calling
figures given represent the fund and are 800-959-4246, or on the AIM Web site,
not intended to reflect actual variable AIMinvestments.com.
product values. They do not reflect
expenses and fees at the separate ========================================
account level. Sales charges, expenses PORTFOLIO MANAGEMENT TEAM
and fees, which are determined by the AS OF 12/31/03
product issuers, will vary and will KIRK L. ANDERSON
lower the total return. MONIKA H. DEGAN, LEAD MANAGER
ASSISTED BY THE LARGE CAP GROWTH TEAM
========================================
VIBCH-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.39%
ADVERTISING-1.12%
Omnicom Group Inc. 15,900 $ 1,388,547
=============================================================================
AEROSPACE & DEFENSE-1.99%
Lockheed Martin Corp. 13,000 668,200
- -----------------------------------------------------------------------------
United Technologies Corp. 18,900 1,791,153
=============================================================================
2,459,353
=============================================================================
ALUMINUM-0.77%
Alcoa Inc. 25,000 950,000
=============================================================================
APPAREL RETAIL-0.71%
Gap, Inc. (The) 37,800 877,338
=============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.58%
Franklin Resources, Inc. 13,800 718,428
=============================================================================
BIOTECHNOLOGY-1.75%
Amgen Inc.(a) 35,000 2,163,000
=============================================================================
BREWERS-0.51%
Anheuser-Busch Cos., Inc. 12,000 632,160
=============================================================================
BROADCASTING & CABLE TV-0.57%
Clear Channel Communications, Inc. 15,000 702,450
=============================================================================
CASINOS & GAMING-0.64%
International Game Technology 22,300 796,110
=============================================================================
COMMUNICATIONS EQUIPMENT-3.08%
Cisco Systems, Inc.(a) 156,900 3,811,101
=============================================================================
COMPUTER & ELECTRONICS RETAIL-0.84%
Best Buy Co., Inc. 19,900 1,039,576
=============================================================================
COMPUTER HARDWARE-2.64%
Dell Inc.(a) 57,700 1,959,492
- -----------------------------------------------------------------------------
International Business Machines Corp. 14,200 1,316,056
=============================================================================
3,275,548
=============================================================================
COMPUTER STORAGE & PERIPHERALS-0.98%
EMC Corp.(a) 93,700 1,210,604
=============================================================================
CONSUMER FINANCE-2.83%
American Express Co. 35,900 1,731,457
- -----------------------------------------------------------------------------
MBNA Corp. 36,300 902,055
- -----------------------------------------------------------------------------
SLM Corp. 23,000 866,640
=============================================================================
3,500,152
=============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-1.77%
First Data Corp. 32,400 $ 1,331,316
- -----------------------------------------------------------------------------
Fiserv, Inc.(a) 21,900 865,269
=============================================================================
2,196,585
=============================================================================
DIVERSIFIED BANKS-2.45%
Bank of America Corp. 15,700 1,262,751
- -----------------------------------------------------------------------------
Wells Fargo & Co. 30,000 1,766,700
=============================================================================
3,029,451
=============================================================================
DIVERSIFIED CAPITAL MARKETS-1.70%
J.P. Morgan Chase & Co. 57,400 2,108,302
=============================================================================
DIVERSIFIED CHEMICALS-0.29%
E. I. du Pont de Nemours & Co. 7,800 357,942
=============================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.75%
Apollo Group, Inc.-Class A(a) 20,800 1,414,400
- -----------------------------------------------------------------------------
H&R Block, Inc. 13,700 758,569
=============================================================================
2,172,969
=============================================================================
ELECTRIC UTILITIES-1.49%
Dominion Resources, Inc. 9,900 631,917
- -----------------------------------------------------------------------------
FPL Group, Inc. 9,400 614,948
- -----------------------------------------------------------------------------
Southern Co. (The) 19,800 598,950
=============================================================================
1,845,815
=============================================================================
ENVIRONMENTAL SERVICES-0.47%
Waste Management, Inc. 19,500 577,200
=============================================================================
FOOD DISTRIBUTORS-0.90%
Sysco Corp. 30,000 1,116,900
=============================================================================
FOOTWEAR-0.54%
NIKE, Inc.-Class B 9,800 670,908
=============================================================================
GENERAL MERCHANDISE STORES-0.73%
Target Corp. 23,500 902,400
=============================================================================
HEALTH CARE EQUIPMENT-4.75%
Boston Scientific Corp.(a) 55,300 2,032,828
- -----------------------------------------------------------------------------
Medtronic, Inc. 33,800 1,643,018
- -----------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 10,900 668,715
- -----------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 21,800 1,534,720
=============================================================================
5,879,281
=============================================================================
HOME IMPROVEMENT RETAIL-1.76%
Home Depot, Inc. (The) 61,600 2,186,184
=============================================================================
</Table>
AIM V.I. BLUE CHIP FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-0.61%
Carnival Corp. (Panama) 18,900 $ 750,897
=============================================================================
HOUSEHOLD PRODUCTS-2.70%
Colgate-Palmolive Co. 17,900 895,895
- -----------------------------------------------------------------------------
Procter & Gamble Co. (The) 24,500 2,447,060
=============================================================================
3,342,955
=============================================================================
HYPERMARKETS & SUPER CENTERS-2.67%
Wal-Mart Stores, Inc. 62,300 3,305,015
=============================================================================
INDUSTRIAL CONGLOMERATES-3.65%
3M Co. 8,800 748,264
- -----------------------------------------------------------------------------
General Electric Co. 101,500 3,144,470
- -----------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 23,600 625,400
=============================================================================
4,518,134
=============================================================================
INDUSTRIAL GASES-0.58%
Air Products & Chemicals, Inc. 13,700 723,771
=============================================================================
INDUSTRIAL MACHINERY-0.61%
Danaher Corp. 8,300 761,525
=============================================================================
INTEGRATED OIL & GAS-2.32%
Exxon Mobil Corp. 70,000 2,870,000
=============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.52%
SBC Communications Inc. 24,800 646,536
=============================================================================
INTERNET RETAIL-0.62%
eBay Inc.(a) 11,900 768,621
=============================================================================
INVESTMENT BANKING & BROKERAGE-4.55%
Goldman Sachs Group, Inc. (The) 19,600 1,935,108
- -----------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 31,800 1,865,070
- -----------------------------------------------------------------------------
Morgan Stanley 31,800 1,840,266
=============================================================================
5,640,444
=============================================================================
LIFE & HEALTH INSURANCE-0.53%
Prudential Financial, Inc. 15,700 655,789
=============================================================================
MANAGED HEALTH CARE-1.59%
UnitedHealth Group Inc. 33,800 1,966,484
=============================================================================
MOVIES & ENTERTAINMENT-1.69%
Viacom Inc.-Class B 47,100 2,090,298
=============================================================================
MULTI-LINE INSURANCE-2.02%
American International Group, Inc. 37,700 2,498,756
=============================================================================
OIL & GAS DRILLING-1.01%
ENSCO International Inc. 21,900 595,023
- -----------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
OIL & GAS DRILLING-(CONTINUED)
Nabors Industries, Ltd. (Bermuda)(a) 15,900 $ 659,850
=============================================================================
1,254,873
=============================================================================
OIL & GAS EQUIPMENT & SERVICES-0.80%
Schlumberger Ltd. (Netherlands) 18,000 984,960
=============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.74%
Citigroup Inc. 95,500 4,635,570
=============================================================================
PHARMACEUTICALS-6.18%
Allergan, Inc. 12,900 990,849
- -----------------------------------------------------------------------------
Johnson & Johnson 23,600 1,219,176
- -----------------------------------------------------------------------------
Pfizer Inc. 93,800 3,313,954
- -----------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 15,000 850,650
- -----------------------------------------------------------------------------
Wyeth 30,100 1,277,745
=============================================================================
7,652,374
=============================================================================
RAILROADS-0.61%
Canadian National Railway Co. (Canada) 12,000 759,360
=============================================================================
REGIONAL BANKS-0.71%
Fifth Third Bancorp 14,900 880,590
=============================================================================
RESTAURANTS-0.51%
McDonald's Corp. 25,600 635,648
=============================================================================
SEMICONDUCTOR EQUIPMENT-2.33%
Applied Materials, Inc.(a) 53,000 1,189,850
- -----------------------------------------------------------------------------
KLA-Tencor Corp.(a) 14,200 833,114
- -----------------------------------------------------------------------------
Novellus Systems, Inc.(a) 20,600 866,230
=============================================================================
2,889,194
=============================================================================
SEMICONDUCTORS-6.54%
Analog Devices, Inc. 24,500 1,118,425
- -----------------------------------------------------------------------------
Intel Corp. 99,100 3,191,020
- -----------------------------------------------------------------------------
Linear Technology Corp. 21,900 921,333
- -----------------------------------------------------------------------------
Microchip Technology Inc. 30,400 1,014,144
- -----------------------------------------------------------------------------
Texas Instruments Inc. 23,800 699,244
- -----------------------------------------------------------------------------
Xilinx, Inc.(a) 29,700 1,150,578
=============================================================================
8,094,744
=============================================================================
SOFT DRINKS-1.32%
Coca-Cola Co. (The) 15,900 806,925
- -----------------------------------------------------------------------------
PepsiCo, Inc. 17,700 825,174
=============================================================================
1,632,099
=============================================================================
SPECIALTY STORES-1.66%
Bed Bath & Beyond Inc.(a) 27,000 1,170,450
- -----------------------------------------------------------------------------
Staples, Inc.(a) 32,400 884,520
=============================================================================
2,054,970
=============================================================================
</Table>
AIM V.I. BLUE CHIP FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
SYSTEMS SOFTWARE-6.57%
Computer Associates International, Inc. 26,500 $ 724,510
- -----------------------------------------------------------------------------
Microsoft Corp. 155,300 4,276,962
- -----------------------------------------------------------------------------
Oracle Corp.(a) 99,500 1,313,400
- -----------------------------------------------------------------------------
VERITAS Software Corp.(a) 49,000 1,820,840
=============================================================================
8,135,712
=============================================================================
THRIFTS & MORTGAGE FINANCE-1.05%
Fannie Mae 17,400 1,306,044
=============================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.09%
AT&T Wireless Services Inc.(a) 44,100 352,359
- -----------------------------------------------------------------------------
Vodafone Group PLC-ADR (United Kingdom) 39,900 999,096
=============================================================================
1,351,455
=============================================================================
Total Common Stocks & Other Equity
Interests (Cost $104,392,610) 119,375,122
=============================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
U.S. TREASURY BILLS-0.40%
0.86%, 03/18/04 (Cost $499,075)(b) $ 500,000(c) $ 499,025
=============================================================================
<Caption>
SHARES
=============================================================================
MONEY MARKET FUNDS-3.24%
Liquid Assets Portfolio(d) 2,005,186 2,005,186
- -----------------------------------------------------------------------------
STIC Prime Portfolio(d) 2,005,186 2,005,186
=============================================================================
Total Money Market Funds (Cost
$4,010,372) 4,010,372
=============================================================================
TOTAL INVESTMENTS-100.03% (Cost $108,902,057) 123,884,519
=============================================================================
OTHER ASSETS LESS LIABILITIES-(0.03%) (41,306)
=============================================================================
NET ASSETS-100.00% $123,843,213
_____________________________________________________________________________
=============================================================================
</Table>
Investment Abbreviations:
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section E and Note 7.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BLUE CHIP FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$104,891,685) $119,874,147
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $4,010,372) 4,010,372
- -------------------------------------------------------------
Receivables for:
Investments sold 199,797
- -------------------------------------------------------------
Variation margin 2,900
- -------------------------------------------------------------
Fund shares sold 57,322
- -------------------------------------------------------------
Dividends 80,288
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 20,128
=============================================================
Total assets 124,244,954
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 288,161
- -------------------------------------------------------------
Fund shares reacquired 7,788
- -------------------------------------------------------------
Deferred compensation and retirement plans 20,964
- -------------------------------------------------------------
Accrued administrative services fees 68,756
- -------------------------------------------------------------
Accrued distribution fees -- Series II 680
- -------------------------------------------------------------
Accrued transfer agent fees 67
- -------------------------------------------------------------
Accrued operating expenses 15,325
=============================================================
Total liabilities 401,741
=============================================================
Net assets applicable to shares outstanding $123,843,213
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $135,844,854
- -------------------------------------------------------------
Undistributed net investment income 113,344
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and futures contracts (27,111,504)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 14,996,519
=============================================================
$123,843,213
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $122,542,686
_____________________________________________________________
=============================================================
Series II $ 1,300,527
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 18,640,709
_____________________________________________________________
=============================================================
Series II 198,820
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 6.57
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 6.54
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$2,373) $ 1,091,728
- ------------------------------------------------------------
Dividends from affiliated money market funds 48,611
- ------------------------------------------------------------
Interest 5,134
============================================================
Total investment income 1,145,473
============================================================
EXPENSES:
Advisory fees 675,009
- ------------------------------------------------------------
Administrative services fees 265,238
- ------------------------------------------------------------
Custodian fees 27,940
- ------------------------------------------------------------
Distribution fees -- Series II 1,675
- ------------------------------------------------------------
Transfer agent fees 6,118
- ------------------------------------------------------------
Trustees' fees 9,721
- ------------------------------------------------------------
Other 30,774
============================================================
Total expenses 1,016,475
============================================================
Less: Fees waived and expense offset
arrangements (866)
============================================================
Net expenses 1,015,609
============================================================
Net investment income 129,864
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (3,957,940)
- ------------------------------------------------------------
Futures contracts 412,895
============================================================
(3,545,045)
============================================================
Change in net unrealized appreciation of:
Investment securities 24,360,686
- ------------------------------------------------------------
Futures contracts 57,371
============================================================
24,418,057
============================================================
Net gain from investment securities and futures
contracts 20,873,012
============================================================
Net increase in net assets resulting from
operations $21,002,876
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BLUE CHIP FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 129,864 $ (18,314)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
futures contracts (3,545,045) (15,015,065)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts 24,418,057 (5,387,912)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 21,002,876 (20,421,291)
==========================================================================================
Share transactions-net:
Series I 36,219,348 25,763,748
- ------------------------------------------------------------------------------------------
Series II 858,157 291,643
==========================================================================================
Net increase in net assets resulting from share
transactions 37,077,505 26,055,391
==========================================================================================
Net increase in net assets 58,080,381 5,634,100
==========================================================================================
NET ASSETS:
Beginning of year 65,762,832 60,128,732
==========================================================================================
End of year (including undistributed net investment income
(loss) of $113,344 and $(16,520) for 2003 and 2002,
respectively) $123,843,213 $ 65,762,832
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. BLUE CHIP FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Blue Chip 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
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. 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.
The Fund's primary investment objective is to achieve long-term growth of
capital, with a secondary objective of current income. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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
AIM V.I. BLUE CHIP FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
F. 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.
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 AIM at the annual rate of 0.75% of the first
$350 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $350 million. AIM has contractually agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%
through December 31, 2004. 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. For the year ended December 31, 2003, AIM waived fees of
$854.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $265,238 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $8,446 for such
services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $1,675.
Certain officers and trustees of the Trust are 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
MARKET PROCEEDS UNREALIZED MARKET
VALUE PURCHASES FROM APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST SALES (DEPRECIATION) 12/31/2003 INCOME GAIN/(LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $1,909,358 $20,974,430 $(20,878,602) $ -- $2,005,186 $24,567 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 1,909,358 20,974,430 (20,878,602) -- 2,005,186 24,044 --
=================================================================================================================================
$3,818,716 $41,948,860 $(41,757,204) $ -- $4,010,372 $48,611 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
AIM V.I. BLUE CHIP FUND
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agent fees from AISI (an affiliate of AIM) of $1
and reductions in custodian fees of $11 under expense offset arrangements, which
resulted in a reduction of the Fund's total expenses of $12.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,739
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--FUTURES CONTRACTS
On December 31, 2003, $77,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- --------------------------------------------------------------------------
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- --------------------------------------------------------------------------
S&P 500 Futures 4 Mar-04/Long $1,110,600 $14,057
__________________________________________________________________________
==========================================================================
</Table>
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 year ended December 31, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 133,423
- -------------------------------------------------------------
Unrealized appreciation -- investments 9,070,506
- -------------------------------------------------------------
Temporary book/tax differences (20,079)
- -------------------------------------------------------------
Capital loss carryforward (21,144,590)
- -------------------------------------------------------------
Post-October capital loss deferral (40,901)
- -------------------------------------------------------------
Shares of beneficial interest 135,844,854
=============================================================
Total net assets $123,843,213
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales and the realization for tax purposes of unrealized gains (losses)
on certain futures contracts.
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 deferral of trustee compensation and
trustee retirement plan expenses.
AIM V.I. BLUE CHIP FUND
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------
December 31, 2008 $ 427,121
- -------------------------------------------------------
December 31, 2009 5,392,628
- -------------------------------------------------------
December 31, 2010 11,780,141
- -------------------------------------------------------
December 31, 2011 3,544,700
=======================================================
Total capital loss carryforward $21,144,590
_______________________________________________________
=======================================================
</Table>
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, 2003 was $57,779,833 and $20,295,070, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $12,298,853
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,228,347)
============================================================
Net unrealized appreciation of investment
securities $ 9,070,506
____________________________________________________________
============================================================
Cost of investments for tax purposes is $114,814,013.
</Table>
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Sold:
Series I 9,203,880 $ 53,263,047 7,212,098 $ 43,703,169
- -------------------------------------------------------------------------------
Series II* 320,667 1,892,028 59,871 337,748
===============================================================================
Reacquired:
Series I (3,034,247) (17,043,699) (3,203,422) (17,939,421)
- -------------------------------------------------------------------------------
Series II* (173,989) (1,033,871) (7,729) (46,105)
===============================================================================
6,316,311 $ 37,077,505 4,060,818 $ 26,055,391
_______________________________________________________________________________
===============================================================================
</Table>
* Series II shares commenced sales on March 13, 2002.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------
DECEMBER 29, 1999
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------------- DECEMBER 31,
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.25 $ 7.11 $ 9.18 $ 10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) 0.00(a) (0.01) 0.02(a) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.31 (1.86) (2.06) (0.84) 0.00
=================================================================================================================================
Total from investment operations 1.32 (1.86) (2.07) (0.82) 0.00
=================================================================================================================================
Net asset value, end of period $ 6.57 $ 5.25 $ 7.11 $ 9.18 $10.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 25.14% (26.16)% (22.54)% (8.18)% 0.00%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $122,543 $65,490 $60,129 $29,787 $1,000
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.13%(c) 1.18% 1.26% 1.31%(d) 1.30%(d)(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.14%(c) (0.03)% (0.17)% 0.07% 3.07%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 24% 38% 19% 15% --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
the periods shown.
(c) Ratios are based on average daily net assets of $89,331,262.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
were 2.13% and 12.49% (annualized) for the year ended December 31, 2000
and for the period ended December 31, 1999, respectively.
(e) Annualized.
(f) Not annualized for periods less than one year.
AIM V.I. BLUE CHIP FUND
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------
MARCH 13, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.24 $ 7.00
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.01)(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.31 (1.75)
==============================================================================================
Total from investment operations 1.30 (1.76)
==============================================================================================
Net asset value, end of period $ 6.54 $ 5.24
______________________________________________________________________________________________
==============================================================================================
Total return(b) 24.81% (25.14)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,301 $ 273
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets 1.38%(c) 1.43%(d)
______________________________________________________________________________________________
==============================================================================================
Ratio of net investment income (loss) to average net assets (0.11)%(c) (0.28)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 24% 38%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
the periods shown.
(c) Ratios are based on average daily net assets of $669,925.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
AIM V.I. BLUE CHIP FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. BLUE CHIP FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Blue Chip Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the years or periods in the four year period
then ended and for the period December 29, 1999 (commencement of operations)
through December 31, 1999. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Blue Chip Fund as of December 31, 2003, 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 years or
periods in the four year period then ended and for the period December 29, 1999
(commencement of operations) through December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. BLUE CHIP FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company); and
President Director and Vice Chairman, AMVESCAP PLC and
Chairman of 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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and 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
- --------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered
Formerly: Partner, law firm of Baker & McKenzie investment company)
- --------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited
Trustee (technology consulting company) (insurance company);
and Captaris, Inc.
(unified messaging
provider)
- --------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman)
Ltd. (private investment and management) and (registered
Magellan Insurance Company investment company);
Annuity and Life Re
Formerly: Director, President and Chief (Holdings), Ltd.
Executive Officer, Volvo Group North America, (insurance company)
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 Century Administaff,
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund
(non-profit)
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. BLUE CHIP FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered
investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and General Counsel, A I M Management Group Inc.
Chief Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, AIM
Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice President,
A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
AIM V.I. BLUE CHIP FUND
AIM V.I. CAPITAL APPRECIATION FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. CAPITAL APPRECIATION FUND seeks growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. CAPITAL APPRECIATION FUND
FUND POSTS DOUBLE-DIGIT GAINS performance of growth and value stocks
FOR FISCAL YEAR was similar, although mid-cap growth
stocks generally outperformed their value
For the year ended December 31, 2003, AIM 40.86% from its low through the end of counterparts.
V. I. Capital Appreciation Fund, Series I the reporting period.
and Series II shares, posted returns of YOUR FUND
29.52% and 29.18%, respectively. The fund During this rally, the United States
slightly outperformed the S&P 500(R) and its allies took military action During the fiscal year, we increased the
Index, frequently cited as a measure of against Iraq and toppled the regime of proportion of the fund's holdings in
the performance of the U.S. stock market Saddam Hussein. The nation's gross stocks that we consider more economically
in general, which returned 28.67% over domestic product, generally considered sensitive. Simultaneously, we reduced its
the same period. The fund's more the broadest measure of economic exposure to stocks that we regard as more
economically sensitive stocks, activity, expanded at an annualized rate defensive core-growth holdings. We made
particularly in the information of 3.1% in the second quarter, 8.2% in these adjustments in response to
technology sector, helped it outperform the third quarter, and 4.0% in the fourth generally improving economic and market
the S&P 500. quarter of 2003. As of the close of the conditions. Over the reporting period, we
year, approximately 64% of the companies noted that the fund's economically
The fund performed in line with the in the S&P 500 had reported third-quarter sensitive holdings generally appreciated
Russell 1000(R) Growth Index, which earnings that exceeded analysts' more than its core-growth holdings.
returned 29.75% for the year, but trailed expectations while approximately 20.5%
the Lipper Multi-Cap Growth Index, which had reported earnings that met those During the year, we increased the
returned 35.38% for the same period. We estimates. The job market, while fund's exposure to the information
believe that the fund underperformed the improving, continued to be weak, however, technology and consumer discretionary
Lipper index because it had a large-cap as the nation's unemployment rate stood sectors while maintaining about the same
focus while other funds in the index had at 5.7% at the close of the year. weighting in health care. These three
more holdings in small- and mid-cap sectors had the most positive impact on
stocks, which generally outperformed All sectors of the S&P 500 recorded fund performance and represented the
large-cap stocks. gains for the fiscal year. Information portfolio's largest sector weightings at
technology, materials and consumer the close of the reporting period. Within
MARKET CONDITIONS discretionary were the top-performing the information technology sector,
sectors while telecommunication services, semiconductor stocks performed well for
Amid a backdrop of generally improving consumer staples and health care were the the fund.
economic conditions, the S&P 500 declined weakest-performing sectors.
at the beginning of 2003, dropping to its We reduced the fund's weighting in
lowest level of the year on March 11. The Small- and mid-cap stocks generally the financials sector by selling
index then rallied, posting a cumulative outperformed large-cap stocks for the insurance stocks as rate increases within
total return of year. The this sub-sector showed signs of
decelerating.
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Microsoft Corp. 2.9% 1. Semiconductors 6.9% Total returns 12/31/02-12/31/03,
2. Microchip Technology Inc. 2.1 2. Pharmaceuticals 5.5 excluding product issuer charges
3. Fiserv, Inc. 2.0 3. Health Care Equipment 5.3
4. Cisco Systems, Inc 1.8 4. Communications Equipment 4.8 Series I Shares 29.52%
5. Clear Channel Communications, Inc. 1.8 5. Semiconductor Equipment 4.3 Series II Shares 29.18
6. Biomet, Inc. 1.7 6. Systems Software 4.0 S&P 500 Index 28.67
7. Analog Devices, Inc. 1.7 7. Broadcasting & Cable TV 3.3 (Broad Market Index)
8. Lam Research Corp. 1.6 8. Specialty Stores 3.2 Russell 1000(R)Growth 29.75
9. CDW Corp 1.6 9. Consumer Finance 3.0 (Style-Specific Index)
10. Dell Inc. 1.6 10. Data Processing & Lipper Multi-Cap Growth Fund Index 35.38
Outsourced Services 2.6 (Peer Group Index)
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 131
TOTAL NET ASSETS $1.0 Billion
====================================================================================================================================
</Table>
<Table>
===============================================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
CHRISTIAN A. COSTANZO
ROBERT LLOYD
BRYAN UNTERHALTER
KENNETH A. ZSCHAPPEL, LEAD MANAGER
ASSISTED BY THE MULTI-CAP GROWTH TEAM
===============================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
AIM V.I. CAPITAL APPRECIATION FUND
Stocks that enhanced performance included RESULTS OF A $10,000 INVESTMENT
Lam Research, a large manufacturer of 5/5/93-12/31/03
semiconductor processing equipment, and Index data from 4/30/93
Teva Pharmaceutical Industries, a major
generic drug company. In October, Lam [LINE CHART]
reported a 10% increase in new orders for
the most recent calendar quarter. Teva AIM V.I. CAPITAL
reported a 34% increase in sales for the S&P 500 RUSSELL 1000 APPRECIATION FUND LIPPER MULTI-CAP
first nine months of 2003, partially INDEX GROWTH INDEX SERIES I SHARES GROWTH FUND INDEX
because of the sale of 14 new products in 5/5/1993 10000 10000 10000 10000
the North American market. 12/31/1993 10807 10809 11950 11583
12/31/1994 10949 11092 12249 11256
Detracting from performance was Lockheed 12/31/1995 15058 15216 16621 15052
Martin, one of the world's largest 12/31/1996 18513 18734 19547 17739
defense contractors. This stock declined 12/31/1997 24687 24446 22192 21810
even though the company reported a 23% 12/31/1998 31748 33909 26480 27218
increase in sales for the third quarter 12/31/1999 38425 45152 38300 39834
of 2003 over the comparable period for 12/31/2000 34928 35027 34124 35033
the previous year. 12/31/2001 30780 27873 26180 26218
12/31/2002 23980 20101 19801 18399
IN CLOSING 12/31/2003 30854 26081 25625 24909
We are pleased to have provided positive Past performance cannot guarantee comparable future results.
returns to the fund's shareholders for
the fiscal year ended December 31, 2003 In evaluating this chart, please note that the chart uses a logarithmic scale
by investing principally in stocks of along the vertical axis (the value scale). This means that each scale increment
companies which we believe are likely to always represents the same percent change in price; in a linear chart each scale
benefit from new or innovative products, increment always represents the same absolute change in price. In this example,
services or processes as well as those the scale increment between $5,000 and $10,000 is the same as that between
that have experienced above-average $10,000 and $20,000. In a linear chart, the latter scale increment would be
long-term growth in earnings and have twice as large. The benefit of using a logarithmic scale is that it better
excellent prospects for future growth. 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
AVERAGE ANNUAL TOTAL RETURNS value of the fund and the indexes during the fund's early years. AIM uses a
- ----------------------------------------- logarithmic scale in financial reports of funds that have more than five years
As of 12/31/03 of performance history.
SERIES I SHARES *Series II shares were first offered ABOUT INDEXES USED IN THIS REPORT
Inception (5/5/93) 9.23% 8/21/01. Returns prior to that date are The unmanaged Standard & Poor's Composite
10 Years 7.93 hypothetical results based on the Index of 500 Stocks (the S&P 500) is an
5 Years -0.64 performance of Series I shares (Since index of common stocks frequently used as
1 Year 29.52 12/31/93), adjusted to reflect Series II a general measure of U.S. stock market
12b-1 fees. The Series I and Series II performance.
SERIES II SHARES* shares invest in the same portfolio of
10 Years 7.66% securities and will have substantially The unmanaged Russell 1000(R) Growth
5 Years -0.88 similar performance, except to the extent Index is a subset of the unmanaged
1 Year 29.18 that expenses borne by each class differ. Russell 1000(R) Index, which represents
the performance of the stocks of
Current performance may be lower or large-capitalization companies; the
higher than the performance data quoted. Growth subset measures the performance of
Past performance cannot guarantee Russell 1000 companies with higher
comparable future results. Due to price/book ratios and higher forecasted
significant market volatility, results of growth values.
an investment made today may differ
substantially from the historical The unmanaged Lipper Multi-Cap Growth
performance shown. Please see your Fund Index represents an average of the
financial advisor for more current performance of the 30 largest
performance. Fund performance figures are multi-capitalization growth funds tracked
historical, and they reflect fund by Lipper, Inc., an independent mutual
expenses, the reinvestment of fund performance monitor.
distributions and changes in net asset
value. The fund's investment return and A direct investment cannot be made in
principal value will fluctuate, so an an index. Unless otherwise indicated,
investor's shares, when redeemed, may be index results include reinvested
worth more or less than their original dividends, and they do not reflect sales
cost. charges. Performance of an index of funds
reflects fund expenses. Performance of a
AIM Variable Insurance Funds are market index does not.
offered through insurance company
separate accounts to fund variable Industry classifications used in
annuity contracts and variable life this report are generally according
insurance policies, and through certain to the Global Industry Classification
pension or retirement plans. Performance Standard, which was developed by and is
figures given represent the fund and are the exclusive property and a service mark
not intended to reflect actual variable of Morgan Stanley Capital International
product values. They do not reflect sales Inc. and Standard & Poor's.
charges, expenses and fees at the
separate-account level. A description of the policies and
procedures that the Fund uses to
Sales charges, expenses and fees, determine how to vote proxies relating to
which are determined by the product portfolio securities is available without
issuers, will vary and will lower the charge, upon request, by calling
total return. 800-959-4246, or on the AIM Web site,
AIMinvestments.com.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in small and mid-size companies
may involve risks not associated with
investing in more established companies.
Also, small companies may have business
risk, significant stock price
fluctuations and illiquidity.
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.74%
ADVERTISING-1.80%
Lamar Advertising Co.(a) 377,800 $ 14,099,496
- --------------------------------------------------------------------------
Omnicom Group Inc. 46,200 4,034,646
==========================================================================
18,134,142
==========================================================================
AEROSPACE & DEFENSE-0.64%
Lockheed Martin Corp. 125,900 6,471,260
==========================================================================
AIR FREIGHT & LOGISTICS-0.59%
Expeditors International of Washington, Inc. 63,000 2,372,580
- --------------------------------------------------------------------------
FedEx Corp. 53,000 3,577,500
==========================================================================
5,950,080
==========================================================================
AIRLINES-0.81%
Southwest Airlines Co. 503,700 8,129,718
==========================================================================
APPAREL RETAIL-2.46%
Chico's FAS, Inc.(a) 125,900 4,652,005
- --------------------------------------------------------------------------
Gap, Inc. (The) 629,600 14,613,016
- --------------------------------------------------------------------------
TJX Cos., Inc. (The) 251,800 5,552,190
==========================================================================
24,817,211
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.24%
Coach, Inc.(a) 63,100 2,382,025
==========================================================================
APPLICATION SOFTWARE-1.33%
Intuit Inc.(a) 157,400 8,328,034
- --------------------------------------------------------------------------
Mercury Interactive Corp.(a) 105,700 5,141,248
==========================================================================
13,469,282
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.92%
Northern Trust Corp. 94,400 4,382,048
- --------------------------------------------------------------------------
State Street Corp. 94,400 4,916,352
==========================================================================
9,298,400
==========================================================================
BIOTECHNOLOGY-2.00%
Amgen Inc.(a) 126,200 7,799,160
- --------------------------------------------------------------------------
Genzyme Corp.(a) 170,100 8,392,734
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 68,600 3,988,404
==========================================================================
20,180,298
==========================================================================
BROADCASTING & CABLE TV-3.25%
Clear Channel Communications, Inc. 379,600 17,776,668
- --------------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 269,160 10,682,961
- --------------------------------------------------------------------------
Westwood One, Inc.(a) 125,900 4,307,039
==========================================================================
32,766,668
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
CASINOS & GAMING-0.70%
MGM MIRAGE(a) 188,900 $ 7,104,529
==========================================================================
COMMUNICATIONS EQUIPMENT-4.82%
Avaya Inc.(a) 251,800 3,258,292
- --------------------------------------------------------------------------
Cisco Systems, Inc.(a) 755,500 18,351,095
- --------------------------------------------------------------------------
Corning Inc.(a) 503,700 5,253,591
- --------------------------------------------------------------------------
Foundry Networks, Inc.(a) 314,800 8,612,928
- --------------------------------------------------------------------------
Juniper Networks, Inc.(a) 251,800 4,703,624
- --------------------------------------------------------------------------
Nortel Networks Corp. (Canada)(a) 1,574,000 6,658,020
- --------------------------------------------------------------------------
UTStarcom, Inc.(a) 49,000 1,816,430
==========================================================================
48,653,980
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.65%
Best Buy Co., Inc. 126,100 6,587,464
==========================================================================
COMPUTER HARDWARE-1.59%
Dell Inc.(a) 472,200 16,035,912
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.03%
EMC Corp.(a) 643,500 8,314,020
- --------------------------------------------------------------------------
Western Digital Corp.(a) 172,400 2,032,596
==========================================================================
10,346,616
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.39%
Caterpillar, Inc. 88,100 7,314,062
- --------------------------------------------------------------------------
Deere & Co. 102,800 6,687,140
==========================================================================
14,001,202
==========================================================================
CONSUMER FINANCE-3.02%
American Express Co. 283,300 13,663,559
- --------------------------------------------------------------------------
MBNA Corp. 390,300 9,698,955
- --------------------------------------------------------------------------
SLM Corp. 188,900 7,117,752
==========================================================================
30,480,266
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.57%
Fiserv, Inc.(a) 503,712 19,901,661
- --------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 218,600 6,057,406
==========================================================================
25,959,067
==========================================================================
DEPARTMENT STORES-0.43%
Nordstrom, Inc. 125,900 4,318,370
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
DIVERSIFIED BANKS-0.50%
Bank of America Corp. 63,000 $ 5,067,090
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.89%
Apollo Group, Inc.-Class A(a) 88,100 5,990,800
- --------------------------------------------------------------------------
Career Education Corp.(a) 75,600 3,029,292
==========================================================================
9,020,092
==========================================================================
DRUG RETAIL-0.91%
Walgreen Co. 251,800 9,160,484
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-0.73%
Agilent Technologies, Inc.(a) 251,800 7,362,632
==========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.48%
Molex Inc. 137,800 4,807,842
==========================================================================
EMPLOYMENT SERVICES-0.79%
Robert Half International Inc.(a) 340,900 7,956,606
==========================================================================
FOOD DISTRIBUTORS-0.58%
Sysco Corp. 157,400 5,860,002
==========================================================================
FOOD RETAIL-0.42%
Whole Foods Market, Inc. 63,000 4,229,190
==========================================================================
GENERAL MERCHANDISE STORES-0.88%
Dollar General Corp. 188,900 3,965,011
- --------------------------------------------------------------------------
Family Dollar Stores, Inc. 137,400 4,929,912
==========================================================================
8,894,923
==========================================================================
HEALTH CARE DISTRIBUTORS-0.95%
AmerisourceBergen Corp. 61,900 3,475,685
- --------------------------------------------------------------------------
Cardinal Health, Inc. 100,700 6,158,812
==========================================================================
9,634,497
==========================================================================
HEALTH CARE EQUIPMENT-5.26%
Biomet, Inc. 474,825 17,288,378
- --------------------------------------------------------------------------
Boston Scientific Corp.(a) 272,200 10,006,072
- --------------------------------------------------------------------------
Guidant Corp. 105,600 6,357,120
- --------------------------------------------------------------------------
Medtronic, Inc. 102,500 4,982,525
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 63,000 3,865,050
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 151,100 10,637,440
==========================================================================
53,136,585
==========================================================================
HEALTH CARE FACILITIES-0.51%
Health Management Associates, Inc.-Class A 214,800 5,155,200
==========================================================================
HEALTH CARE SERVICES-1.91%
AdvancePCS(a) 137,200 7,224,952
- --------------------------------------------------------------------------
Caremark Rx, Inc.(a) 251,800 6,378,094
- --------------------------------------------------------------------------
Medco Health Solutions, Inc.(a) 166,600 5,662,734
==========================================================================
19,265,780
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-0.82%
Lowe's Cos., Inc. 148,900 $ 8,247,571
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.66%
Carnival Corp. (Panama) 125,900 5,002,007
- --------------------------------------------------------------------------
Marriott International, Inc.-Class A 63,000 2,910,600
- --------------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia) 157,400 5,475,946
- --------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 94,400 3,395,568
==========================================================================
16,784,121
==========================================================================
HOUSEHOLD PRODUCTS-0.78%
Procter & Gamble Co. (The) 79,300 7,920,484
==========================================================================
HYPERMARKETS & SUPER CENTERS-1.32%
Wal-Mart Stores, Inc. 251,800 13,357,990
==========================================================================
INDUSTRIAL CONGLOMERATES-0.56%
3M Co. 65,900 5,603,477
==========================================================================
INDUSTRIAL MACHINERY-2.17%
Danaher Corp. 63,000 5,780,250
- --------------------------------------------------------------------------
Eaton Corp. 50,400 5,442,192
- --------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 157,400 10,684,312
==========================================================================
21,906,754
==========================================================================
INTERNET RETAIL-2.13%
Amazon.com, Inc.(a) 158,600 8,348,704
- --------------------------------------------------------------------------
eBay Inc.(a) 127,000 8,202,930
- --------------------------------------------------------------------------
InterActiveCorp.(a) 146,100 4,957,173
==========================================================================
21,508,807
==========================================================================
INTERNET SOFTWARE & SERVICES-0.69%
Yahoo! Inc.(a) 154,300 6,969,731
==========================================================================
INVESTMENT BANKING & BROKERAGE-2.08%
Goldman Sachs Group, Inc. (The) 100,700 9,942,111
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 188,900 11,078,985
==========================================================================
21,021,096
==========================================================================
IT CONSULTING & OTHER SERVICES-0.33%
Accenture Ltd.-Class A (Bermuda)(a) 127,400 3,353,168
==========================================================================
MANAGED HEALTH CARE-2.27%
Aetna Inc. 74,800 5,054,984
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 137,600 8,005,568
- --------------------------------------------------------------------------
WellPoint Health Networks Inc.(a) 101,500 9,844,485
==========================================================================
22,905,037
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MOTORCYCLE MANUFACTURERS-0.46%
Harley-Davidson, Inc. 97,400 $ 4,629,422
==========================================================================
MOVIES & ENTERTAINMENT-1.46%
Pixar, Inc.(a) 51,800 3,589,222
- --------------------------------------------------------------------------
Viacom Inc.-Class B 251,800 11,174,884
==========================================================================
14,764,106
==========================================================================
MULTI-LINE INSURANCE-0.55%
American International Group, Inc. 84,200 5,580,776
==========================================================================
OIL & GAS DRILLING-1.48%
ENSCO International Inc. 191,300 5,197,621
- --------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 125,900 5,224,850
- --------------------------------------------------------------------------
Noble Corp. (Cayman Islands)(a) 125,900 4,504,702
==========================================================================
14,927,173
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.33%
BJ Services Co.(a) 147,300 5,288,070
- --------------------------------------------------------------------------
Smith International, Inc.(a) 113,300 4,704,216
- --------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 94,400 3,398,400
==========================================================================
13,390,686
==========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.50%
Devon Energy Corp. 88,100 5,044,606
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.21%
Citigroup Inc. 251,800 12,222,372
==========================================================================
PERSONAL PRODUCTS-0.57%
Gillette Co. (The) 157,400 5,781,302
==========================================================================
PHARMACEUTICALS-5.48%
Forest Laboratories, Inc.(a) 63,000 3,893,400
- --------------------------------------------------------------------------
Lilly (Eli) & Co. 152,700 10,739,391
- --------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 107,900 7,693,270
- --------------------------------------------------------------------------
Pfizer Inc. 325,100 11,485,783
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 282,700 16,031,917
- --------------------------------------------------------------------------
Wyeth 128,500 5,454,825
==========================================================================
55,298,586
==========================================================================
PUBLISHING-0.60%
Gannett Co., Inc. 63,000 5,617,080
- --------------------------------------------------------------------------
Getty Images, Inc.(a) 7,700 386,001
==========================================================================
6,003,081
==========================================================================
RESTAURANTS-2.22%
McDonald's Corp. 251,800 6,252,194
- --------------------------------------------------------------------------
Outback Steakhouse, Inc. 152,800 6,755,288
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
RESTAURANTS-(CONTINUED)
P.F. Chang's China Bistro, Inc.(a) 88,100 $ 4,482,528
- --------------------------------------------------------------------------
Wendy's International, Inc. 125,900 4,940,316
==========================================================================
22,430,326
==========================================================================
SEMICONDUCTOR EQUIPMENT-4.26%
Applied Materials, Inc.(a) 406,000 9,114,700
- --------------------------------------------------------------------------
KLA-Tencor Corp.(a) 219,000 12,848,730
- --------------------------------------------------------------------------
Lam Research Corp.(a) 503,700 16,269,510
- --------------------------------------------------------------------------
Teradyne, Inc.(a) 188,900 4,807,505
==========================================================================
43,040,445
==========================================================================
SEMICONDUCTORS-6.85%
Analog Devices, Inc. 377,800 17,246,570
- --------------------------------------------------------------------------
Broadcom Corp.-Class A(a) 88,000 2,999,920
- --------------------------------------------------------------------------
Linear Technology Corp. 251,800 10,593,226
- --------------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 75,600 2,867,508
- --------------------------------------------------------------------------
Maxim Integrated Products, Inc. 220,400 10,975,920
- --------------------------------------------------------------------------
Microchip Technology Inc. 638,225 21,291,186
- --------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 304,776 3,120,906
==========================================================================
69,095,236
==========================================================================
SPECIALIZED FINANCE-0.57%
Moody's Corp. 94,400 5,715,920
==========================================================================
SPECIALTY STORES-3.22%
Bed Bath & Beyond Inc.(a) 366,500 15,887,775
- --------------------------------------------------------------------------
Staples, Inc.(a) 314,800 8,594,040
- --------------------------------------------------------------------------
Tiffany & Co. 80,100 3,620,520
- --------------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 125,900 4,377,543
==========================================================================
32,479,878
==========================================================================
SYSTEMS SOFTWARE-4.03%
Microsoft Corp. 1,070,300 29,476,062
- --------------------------------------------------------------------------
Oracle Corp.(a) 314,800 4,155,360
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 188,900 7,019,524
==========================================================================
40,650,946
==========================================================================
TECHNOLOGY DISTRIBUTORS-1.61%
CDW Corp. 281,200 16,242,112
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.48%
Nextel Communications, Inc.-Class A(a) 229,200 6,431,352
- --------------------------------------------------------------------------
Vodafone Group PLC (United Kingdom) 3,443,230 8,514,824
==========================================================================
14,946,176
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $737,521,464) 986,458,798
==========================================================================
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MONEY MARKET FUNDS-1.98%
Liquid Assets Portfolio(b) 9,991,889 $ 9,991,889
- --------------------------------------------------------------------------
STIC Prime Portfolio(b) 9,991,889 9,991,889
==========================================================================
Total Money Market Funds (Cost
$19,983,778) 19,983,778
==========================================================================
TOTAL INVESTMENTS-99.72% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $757,505,242) 1,006,442,576
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.99%
Liquid Assets Portfolio(b)(c) 30,149,300 30,149,300
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $30,149,300) 30,149,300
==========================================================================
TOTAL INVESTMENTS-102.71% (Cost $787,654,542) 1,036,591,876
==========================================================================
OTHER ASSETS LESS LIABILITIES-(2.71%) (27,305,774)
==========================================================================
NET ASSETS-100.00% $1,009,286,102
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(c) 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 accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$737,521,464)* $ 986,458,798
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $50,133,078) 50,133,078
- -------------------------------------------------------------
Receivables for:
Investments sold 3,086,710
- -------------------------------------------------------------
Fund shares sold 311,755
- -------------------------------------------------------------
Dividends 473,274
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 74,726
- -------------------------------------------------------------
Other assets 193
=============================================================
Total assets 1,040,538,534
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 398,213
- -------------------------------------------------------------
Deferred compensation and retirement plans 105,374
- -------------------------------------------------------------
Collateral upon return of securities loaned 30,149,300
- -------------------------------------------------------------
Accrued administrative services fees 533,368
- -------------------------------------------------------------
Accrued distribution fees -- Series II 38,646
- -------------------------------------------------------------
Accrued transfer agent fees 4,007
- -------------------------------------------------------------
Accrued operating expenses 23,524
=============================================================
Total liabilities 31,252,432
=============================================================
Net assets applicable to shares outstanding $1,009,286,102
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,236,880,333
- -------------------------------------------------------------
Undistributed net investment income (loss) (92,177)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (476,442,225)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 248,940,171
=============================================================
$1,009,286,102
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 938,819,999
_____________________________________________________________
=============================================================
Series II $ 70,466,103
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 44,119,717
_____________________________________________________________
=============================================================
Series II 3,330,531
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 21.28
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 21.16
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of $28,844,544
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$31,527) $ 5,049,862
- -------------------------------------------------------------
Dividends from affiliated money market funds** 317,092
=============================================================
Total investment income 5,366,954
=============================================================
EXPENSES:
Advisory fees 5,305,478
- -------------------------------------------------------------
Administrative services fees 1,906,559
- -------------------------------------------------------------
Custodian fees 62,655
- -------------------------------------------------------------
Distribution fees--Series II 107,842
- -------------------------------------------------------------
Transfer agent fees 48,791
- -------------------------------------------------------------
Trustees' fees 20,108
- -------------------------------------------------------------
Other 31,187
=============================================================
Total expenses 7,482,620
=============================================================
Less: Fees waived and expense offset
arrangements (6,011)
=============================================================
Net expenses 7,476,609
=============================================================
Net investment income (loss) (2,109,655)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTIONS CONTRACTS:
Net realized gain (loss) from:
Investment securities (55,984,170)
- -------------------------------------------------------------
Foreign currencies 68,669
- -------------------------------------------------------------
Option contracts written 31,799
=============================================================
(55,883,702)
=============================================================
Change in net unrealized appreciation of:
Investment securities 283,912,177
- -------------------------------------------------------------
Foreign currencies 2,443
=============================================================
283,914,620
=============================================================
Net gain from investment securities and foreign
currencies 228,030,918
=============================================================
Net increase in net assets resulting from
operations $225,921,263
_____________________________________________________________
=============================================================
</Table>
** Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,109,655) $ (2,676,481)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts: (55,883,702) (155,812,148)
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 283,914,620 (118,601,093)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 225,921,263 (277,089,722)
==============================================================================================
Share transactions-net:
Series I (38,246,197) (123,222,717)
- ----------------------------------------------------------------------------------------------
Series II 34,680,159 23,479,493
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (3,566,038) (99,743,224)
==============================================================================================
Net increase (decrease) in net assets 222,355,225 (376,832,946)
==============================================================================================
NET ASSETS:
Beginning of year 786,930,877 1,163,763,823
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(92,177) and $(92,938) for 2003 and 2002,
respectively) $1,009,286,102 $ 786,930,877
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Capital Appreciation 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
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. 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.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. CAPITAL APPRECIATION FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, 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.
H. 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.
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 AIM at the annual rate of 0.65% of the first
$250 million of the Fund's average daily net assets, plus 0.60% of the Fund's
average daily net assets in excess of $250 million. AIM has voluntarily agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
Voluntary expense limitations may be modified or discontinued at any time
without further notice to investors. 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). For
the year ended December 31, 2003, AIM waived fees of $5,898.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $1,906,559 for such services
of which AIM retained $208,585 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $53,308 for
such services.
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 furnish
continuing personal shareholder services to their customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $107,842.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. CAPITAL APPRECIATION FUND
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 and
cash collateral from securities lending transactions in affiliated money market
funds. Each day the prior day's balance invested in the affiliated money market
fund is redeemed in full and a new purchase amount is submitted to invest the
current day's available cash and/or cash collateral received from security
lending transactions. The table below shows the transactions in and earnings
from investments in affiliated money market funds for the period ended December
31, 2003.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $12,440,001 $176,856,839 $(179,304,951) $ -- $ 9,991,889 $155,278 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 12,440,001 176,856,839 (179,304,951) -- $ 9,991,889 151,221 --
=================================================================================================================================
Subtotal $24,880,002 $353,713,678 $(358,609,902) $ -- $19,983,778 $306,499 $ --
=================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ -- $155,938,100 $(125,788,800) $ -- $30,149,300 $ 10,593 $ --
=================================================================================================================================
Total $24,880,002 $509,651,778 $(484,398,702) $ -- $50,133,078 $317,092 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$138,848.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agent fees from AISI (an affiliate of AIM) of $2
and reductions in custodian fees of $111 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $113.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $5,904
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
AIM V.I. CAPITAL APPRECIATION FUND
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of 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 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. The Fund could also experience delays and costs in gaining access to
the collateral.
At December 31, 2003, securities with an aggregate value of $28,844,544 were
on loan to brokers. The loans were secured by cash collateral of $30,149,300
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2003, the Fund received dividends on cash
collateral net of fees paid to counterparties of $10,593 for securities lending
transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ----------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 347 117,978
- ----------------------------------------------------------
Exercised (197) (86,179)
- ----------------------------------------------------------
Expired (150) (31,799)
==========================================================
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
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, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 239,973,049
- -------------------------------------------------------------
Temporary book/tax differences (92,052)
- -------------------------------------------------------------
Capital loss carryforward (467,475,104)
- -------------------------------------------------------------
Post-October currency loss deferral (124)
- -------------------------------------------------------------
Shares of beneficial interest 1,236,880,333
=============================================================
Total net assets $1,009,286,102
_____________________________________________________________
=============================================================
</Table>
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 tax-basis unrealized appreciation
(depreciation) on investments includes appreciation on foreign currencies of
$2,837.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------
December 31, 2009 $254,717,808
- -------------------------------------------------------
December 31, 2010 156,444,344
- -------------------------------------------------------
December 31, 2011 56,312,952
=======================================================
Total capital loss carryforward $467,475,104
_______________________________________________________
=======================================================
</Table>
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, 2003 was $510,471,655 and $517,384,332, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $247,960,545
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (7,990,333)
=============================================================
Net unrealized appreciation of investment
securities $239,970,212
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $796,621,664.
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily, as a result of differing book/tax treatment of net operating loss and
foreign currency transactions, on December 31, 2003, undistributed net
investment income was increased by $2,110,416, undistributed net realized gains
decreased by $68,669 and shares of beneficial interest decreased by $2,041,747.
This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 12,106,592 $ 220,433,208 10,379,924 $ 195,828,397
- --------------------------------------------------------------------------------------------------------------------------
Series II 2,366,684 43,712,246 1,386,641 24,993,930
==========================================================================================================================
Reacquired:
Series I (14,425,506) (258,679,405) (17,365,036) (319,051,114)
- --------------------------------------------------------------------------------------------------------------------------
Series II (495,187) (9,032,087) (90,181) (1,514,437)
==========================================================================================================================
(447,417) $ (3,566,038) (5,688,652) $ (99,743,224)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.43 $ 21.72 $ 30.84 $ 35.58 $ 25.20
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.05)(a) (0.05)(a) (0.05) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.89 (5.24) (7.17) (3.79) 11.17
=================================================================================================================================
Total from investment operations 4.85 (5.29) (7.22) (3.84) 11.15
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (1.90) (0.90) (0.75)
=================================================================================================================================
Total distributions -- -- (1.90) (0.90) (0.77)
=================================================================================================================================
Net asset value, end of period $ 21.28 $ 16.43 $ 21.72 $ 30.84 $ 35.58
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 29.52% (24.35)% (23.28)% (10.91)% 44.61%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $938,820 $763,038 $1,160,236 $1,534,209 $1,131,217
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.85%(c) 0.85% 0.85% 0.82% 0.73%
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.23)%(c) (0.27)% (0.22)% (0.17)% (0.06)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 61% 67% 65% 98% 65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total Returns are not
annualized for periods less than one year and do not reflect charges at
the separate account level which if included would reduce total returns
for all periods shown.
(c) Ratios are based on average daily net assets of $820,276,096.
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------------------
AUGUST 21, 2001
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
---------------------- DECEMBER 31,
2003 2002 2001
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.38 $ 21.70 $23.19
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.09)(a) (0.04)(a)
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.87 (5.23) 0.45
===========================================================================================================
Total from investment operations 4.78 (5.32) 0.41
===========================================================================================================
Less distributions from net realized gains -- -- (1.90)
===========================================================================================================
Net asset value, end of period $ 21.16 $ 16.38 $21.70
___________________________________________________________________________________________________________
===========================================================================================================
Total return(b) 29.18% (24.52)% 1.94%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,466 $23,893 $3,527
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of expenses to average net assets 1.10%(c) 1.10% 1.09%(d)
===========================================================================================================
Ratio of net investment income (loss) to average net assets (0.48)%(c) (0.52)% (0.46)%(d)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate(e) 61% 67% 65%
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total Returns are not
annualized for periods less than one year and do not reflect charges at
the separate account level which if included would reduce total returns
for all periods shown.
(c) Ratios are based on average daily net assets of $43,136,986.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. CAPITAL APPRECIATION FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. CAPITAL APPRECIATION FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Capital Appreciation Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2003, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the years or periods in the five
year period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Capital Appreciation Fund as of December 31, 2003, 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 years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. CAPITAL APPRECIATION FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and
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
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Administaff, Discovery
Trustee Group, Inc. (government affairs company) and Global Education Fund
Texana Timber LP (sustainable forestry company) (non-profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. CAPITAL APPRECIATION FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis Cortland Trust, Inc.
Trustee and Frankel LLP (registered investment
company)
- --------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited
Partnership (real estate development
company)
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary N/A
Senior Vice President and Chief and General Counsel, A I M Management
Legal Officer Group Inc. (financial services holding
company) and A I M Advisors, Inc.; Vice
President, A I M Capital Management, Inc.,
A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice President
and General Counsel, Liberty Funds Group,
LLC
- --------------------------------------------------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance N/A
Vice President Officer, A I M Advisors, Inc. and A I M
Capital Management, Inc.; and Vice
President, AIM Investment Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management N/A
Vice President Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and
Chief Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
AIM V.I. CAPITAL APPRECIATION FUND
AIM V.I. CAPITAL DEVELOPMENT FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. CAPITAL DEVELOPMENT FUND seeks to provide
long-term growth of capital.
YOUR GOALS. OUR SOLUTIONS [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. CAPITAL DEVELOPMENT FUND
FUND POSTS RETURN OF 35% FOR YEAR turned in strong performances. However,
the health care sector is considered a
For the year ended December 31, 2003, AIM for the fiscal year. Information less economically sensitive sector
V.I. Capital Development Fund's Series I technology, materials and consumer because it does not benefit as directly
shares returned 35.36%. Series II shares discretionary were the top-performing from an improving economy as other
returned 35.04%. The fund's broad-based sectors, while telecommunications sectors. Although it was the S&P 500's
index, The S&P 500--Registered Trademark-- services, consumer staples and health third-worst performer for the year,
Index, returned 28.67%. The Russell care were the weakest-performing sectors. health care was one of our top
Midcap--Registered Trademark-- Index performers. The average return of the
returned 40.06%, and the Lipper Mid-Cap The nation's gross domestic product, fund's health care stocks far exceeded
Core Fund Index returned 36.58%. The fund generally considered the broadest measure the index's sector return.
outperformed the S&P 500 Index in part of economic activity, expanded at an
because the fund invests in small- and annualized rate of 1.4% in the first Throughout most of the year,
mid-cap stocks and the index primarily quarter, 3.1% in the second quarter, 8.2% approximately 60% to 70% of the fund was
contains large-cap stocks, which in the third quarter, and 4.0% in the invested in midcap stocks, with about 30%
generally underperformed the stocks of fourth quarter of 2003. to 40% in smallcap stocks. As of December
smaller capitalization companies this 31, 2003, the fund's portfolio was
year. We believe the fund lagged the However, the job market, while characterized by Lipper, Inc., an
Russell Midcap Index because it did not improving, continued to be weak, as the independent mutual fund performance
own many of the speculative stocks which nation's unemployment rate stood at 5.7% monitor, as containing 62.9% mid-cap
contributed to index performance. at the close of the year. stocks, and 37.1% small-cap stocks.
Riskier, lower-quality stocks provided
higher returns in 2003--an observation YOUR FUND We did not dramatically change the
noted often by market observers. positioning of the fund over the period.
Information technology, financials, We started the year with the fund
MARKET CONDITIONS consumer discretionary and health care positioned for an economic recovery. As
provided the largest contributions to the economy strengthened, we shifted away
The S&P 500 Index declined at the fund performance this year. We had a from some of the less economically
beginning of 2003, dropping to its lowest larger stake in information technology sensitive stocks and increased our
level of the year on March 11. The index than the S&P 500 Index, and information holdings in companies that benefit from
then rallied through the end of the technology was the best-performing sector economic expansion. The change was one of
reporting period. in the index. Because of our overweight degree, not a wholesale change.
position, the sector made a larger
As of the close of the year, contribution to the fund's positive Of the three stocks that contributed
approximately 64% of the companies in the performance than it did for the S&P 500. most to the portfolio's return for the
S&P 500 Index had reported third-quarter year, two were in the consumer
earnings that exceeded analysts' With the improving economy and the discretionary sector. Best Buy, the
expectations while approximately 20% had rewarding performance of more leading consumer electronics retailer in
reported earnings that met those economically sensitive stocks, it was not the U.S., benefited from strong sales in
estimates. All sectors of the S&P 500 surprising that the fund's holdings in digital entertainment products. The
recorded gains the information technology, financials company experienced steady and marked
and consumer discretionary sectors growth in its share price for the first
11 months of the year. The
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Omnicare, Inc. 1.6% 1. Thrifts & Mortgage Finance 5.6% Total returns 12/31/02-12/31/03,
2. Friedman, Billings, 2. Real Estate 3.8 excluding product issuer charges
Ramsey Group, Inc.-Class A 1.5 3. Data Processing &
3. Autodesk, Inc. 1.4 Outsourced Services 3.7 Series I Shares 35.36%
4. Advance Auto Parts, Inc. 1.3 4. Semiconductors 3.6 Series II Shares 35.04
5. American Standard Cos. Inc. 1.2 5. Application Software 3.3 S&P 500 Index
6. SPX Corp. 1.2 6. Electronic Equipment Manufacturers 3.3 (Broad Market Index) 28.67
7. New York Community Bancorp, Inc. 1.2 7. Specialty Stores 3.1 Russell Midcap Index
8. Bard (C.R.), Inc. 1.2 8. Pharmaceuticals 2.9 (Style-Specific Index) 40.06
9. American Financial Realty Trust 1.2 9. Health Care Equipment 2.7 Lipper Mid-Cap Core Fund Index
10. Rockwell Automation, Inc. 1.2 10. Health Care Services 2.7 (Peer Group Index) 36.58
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 115
TOTAL NET ASSETS $127.4 million
====================================================================================================================================
</Table>
*Excludes money market fund holdings and based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
<Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
fund no longer owns shares in this RESULTS OF A $10,000 INVESTMENT
security. As stated in the fund 5/1/98-12/31/03
prospectus, one of the considerations in Index data from 4/30/98
purchasing securities is the relationship
between the price of the security and its [LINE CHART]
estimated fundamental value, and we sell
our holdings when they reach or exceed AIM V.I. CAPITAL
what we consider their fundamental value. RUSSELL MIDCAP LIPPER MID-CAP DEVELOPMENT FUND S&P 500
INDEX CORE FUND INDEX SERIES I SHARES INDEX
Hasbro, the number two toy maker in 5/1/1998 10000 10000 10000 10000
the U.S., provided the third-strongest 12/31/1998 9911 9530 9249 11172
contribution to the fund's return for the 6/30/1999 10936 10237 9431 12554
year. Hasbro's success this year can be 12/31/1999 11718 12217 11941 13522
attributed to the company's two-year 6/30/2000 12318 13519 13336 13464
achievements in reducing its cost 12/31/2000 12685 12981 13044 12291
structure and its debt as well as its 6/30/2001 12436 12939 12894 11469
stable of products with wide appeal and 12/31/2001 11971 12345 11990 10832
name recognition. 6/30/2002 11288 11443 11407 9407
12/31/2002 10034 10200 9428 8439
Two health care companies, Cerner and 6/30/2003 11586 11640 10804 9430
Andrx Group, were among the holdings that 12/31/2003 14053 13932 12764 10858
detracted from fund performance. Cerner
provides a software platform that enables Source: Lipper, Inc.
health care providers to manage
financial, administrative, and patient Past performance cannot guarantee comparable future results.
care information. In July 2003, the
company announced second quarter earnings In evaluating this chart, please note that the chart uses a logarithmic scale
of 25 cents a share, down 39% compared to along the vertical axis (the value scale). This means that each scale increment
the same quarter of the previous year. We always represents the same percent change in price; in a linear chart each scale
no longer own this security. 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
Andrx develops timed-release generic $10,000 and $20,000. In a linear chart, the latter scale increment would be
versions of a number of well-known twice as large. The benefit of using a logarithmic scale is that it better
prescription drugs. In March 2003, illustrates performance during the fund's early years before reinvested
analysts lowered their earnings estimates distributions and compounding create the potential for the original investment
for the company because of delays in to grow to very large numbers. Had the chart used a linear scale along its
launching new products, and we vertical axis, you would not be able to see as clearly the movements in the
subsequently sold our shares in the value of the fund and the indexes during the fund's early years. AIM uses a
company. logarithmic scale in financial reports of funds that have more than five years
of performance history.
IN CLOSING
adjusted to reflect Series II 12b-1 fees. fund's foreign holdings, differences in
Throughout the year, we remained The Series I and Series II shares invest accounting, political risks and the
committed to the fund's capitalization in the same portfolio of securities and lesser degree of public information
target, selection criteria, and sell will have substantially similar required to be provided by non-U.S.
discipline. We are pleased to be able to performance, except to the extent that companies.
report the fund's solid performance for expenses borne by each class differ.
the year, and we appreciate your ABOUT INDEXES USED IN THIS REPORT
participation in the fund. Current performance may be lower or
higher than the performance data quoted. The unmanaged Standard & Poor's Composite
---------- Past performance cannot guarantee Index of 500 Stocks (the S&P
comparable future results. Due to 500--Registered Trademark-- Index) is an
AVERAGE ANNUAL TOTAL RETURNS significant market volatility, results of index of common stocks frequently used as
- ----------------------------------------- an investment made today may differ a general measure of U.S. stock market
As of 12/31/03 substantially from the historical performance.
performance shown. Please see your
SERIES I SHARES financial advisor for more current The unmanaged Russell Midcap Index
Inception (5/1/98) 4.40% performance. represents the performance of the stocks
5 Years 6.65 of domestic mid-capitalization companies.
1 Year 35.36 The fund's performance figures are
historical, and they reflect fund The unmanaged Lipper Mid-Cap Core
SERIES II SHARES* expenses, the reinvestment of Fund Index represents an average of the
Inception 4.15% distributions and changes in net asset performance of the 30 largest
5 Years 6.40 value. Performance data quoted represent mid-capitalization core funds tracked by
1 Year 35.04 past performance, and the investment Lipper, Inc., an independent mutual fund
return and principal value will performance monitor.
fluctuate, so an investor's shares, when
*Series II shares were first offered redeemed, may be worth more or less than A direct investment cannot be made in
8/21/01. Returns prior to that date are their original cost. an index. Unless otherwise indicated,
hypothetical results based on the index results include reinvested
performance of Series I shares (inception AIM Variable Insurance Funds are dividends, and they do not reflect sales
date 5/1/98), offered through insurance company charges. Performance of an index of funds
separate accounts to fund variable reflects fund expenses; performance of a
annuity contracts and variable life market index does not. Industry
insurance policies, and through certain classifications used in this report are
pension or retirement plans. Performance generally according to the Global
figures given represent the fund and are Industry Classification Standard, which
not intended to reflect actual variable was developed by and is the exclusive
product values. They do not reflect sales property and a service mark of Morgan
charges, expenses and fees at the Stanley Capital International Inc.
separate account level. Sales charges, and Standard & Poor's.
expenses and fees, which are determined
by the product issuers, will vary and A description of the policies and
will lower the total return. procedures that the Fund uses to
determine how to vote proxies relating to
PRINCIPAL RISKS OF INVESTING IN THE FUND portfolio securities is available without
charge, upon request, by calling
Investing in small and mid-size companies 800-959-4246, or on the AIM Web site,
may involve risks not associated with AIMinvestments.com.
investing in more established companies.
Also, small companies may have business
risk, significant stock price
fluctuations and illiquidity.
The fund may invest up to 25% of its
total assets in foreign securities.
International investing presents certain
risks not associated with investing =========================================
solely in the United States. These PORTFOLIO MANAGEMENT TEAM
include risks relating to fluctuations in AS OF 12/31/03
the value of the U.S. dollar relative to MICHAEL CHAPMAN
the values of other currencies, the PAUL J. RASPLICKA, LEAD MANAGER
custody arrangements made for the ASSISTED BY THE SMALL/MID CAP CORE TEAM
=========================================
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.25%
ADVERTISING-1.20%
Interpublic Group of Cos., Inc. (The)(a) 57,700 $ 900,120
- -------------------------------------------------------------------------
Lamar Advertising Co.(a) 16,750 625,110
=========================================================================
1,525,230
=========================================================================
AIR FREIGHT & LOGISTICS-0.97%
Robinson (C.H.) Worldwide, Inc. 32,500 1,232,075
=========================================================================
APPAREL RETAIL-1.99%
Limited Brands 69,100 1,245,873
- -------------------------------------------------------------------------
Ross Stores, Inc. 48,800 1,289,784
=========================================================================
2,535,657
=========================================================================
APPLICATION SOFTWARE-3.32%
Amdocs Ltd. (United Kingdom)(a) 43,200 971,136
- -------------------------------------------------------------------------
Autodesk, Inc. 70,100 1,723,058
- -------------------------------------------------------------------------
Intuit Inc.(a) 12,700 671,957
- -------------------------------------------------------------------------
Siebel Systems, Inc.(a) 61,700 855,779
=========================================================================
4,221,930
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.04%
Affiliated Managers Group, Inc.(a) 18,000 1,252,620
- -------------------------------------------------------------------------
American Capital Strategies, Ltd. 45,100 1,340,823
=========================================================================
2,593,443
=========================================================================
BIOTECHNOLOGY-0.54%
QLT Inc. (Canada)(a) 36,700 691,795
=========================================================================
BROADCASTING & CABLE TV-1.21%
Cox Radio, Inc.-Class A(a) 35,500 895,665
- -------------------------------------------------------------------------
Westwood One, Inc.(a) 18,900 646,569
=========================================================================
1,542,234
=========================================================================
BUILDING PRODUCTS-1.24%
American Standard Cos. Inc.(a) 15,700 1,580,990
=========================================================================
CASINOS & GAMING-2.26%
GTECH Holdings Corp. 29,700 1,469,853
- -------------------------------------------------------------------------
Harrah's Entertainment, Inc. 28,400 1,413,468
=========================================================================
2,883,321
=========================================================================
COMMUNICATIONS EQUIPMENT-2.01%
Harris Corp. 33,700 1,278,915
- -------------------------------------------------------------------------
UTStarcom, Inc.(a) 34,400 1,275,208
=========================================================================
2,554,123
=========================================================================
COMPUTER STORAGE & PERIPHERALS-1.41%
Hutchinson Technology Inc.(a) 18,900 580,986
- -------------------------------------------------------------------------
Imation Corp. 34,500 1,212,675
=========================================================================
1,793,661
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.13%
Cummins Inc. 14,100 $ 690,054
- -------------------------------------------------------------------------
Navistar International Corp.(a) 15,500 742,295
=========================================================================
1,432,349
=========================================================================
CONSUMER FINANCE-0.89%
AmeriCredit Corp.(a) 71,200 1,134,216
=========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.67%
Alliance Data Systems Corp.(a) 46,000 1,273,280
- -------------------------------------------------------------------------
Certegy Inc. 23,750 779,000
- -------------------------------------------------------------------------
DST Systems, Inc.(a) 32,100 1,340,496
- -------------------------------------------------------------------------
Fiserv, Inc.(a) 18,200 719,082
- -------------------------------------------------------------------------
Iron Mountain Inc.(a) 14,225 562,456
=========================================================================
4,674,314
=========================================================================
DISTILLERS & VINTNERS-0.77%
Constellation Brands, Inc.-Class A(a) 29,600 974,728
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.56%
ARAMARK Corp.-Class B 47,200 1,294,224
- -------------------------------------------------------------------------
United Rentals, Inc.(a) 35,900 691,434
=========================================================================
1,985,658
=========================================================================
DIVERSIFIED METALS & MINING-1.19%
CONSOL Energy Inc. (Acquired 09/17/03; Cost
$1,069,200)(a)(b)(c) 60,000 1,398,600
- -------------------------------------------------------------------------
CONSOL Energy Inc. 4,700 121,730
=========================================================================
1,520,330
=========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.32%
Cooper Industries, Ltd.-Class A (Bermuda) 25,300 1,465,629
- -------------------------------------------------------------------------
Rockwell Automation, Inc. 41,900 1,491,640
=========================================================================
2,957,269
=========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-3.29%
Amphenol Corp.-Class A(a) 20,900 1,336,137
- -------------------------------------------------------------------------
Varian Inc.(a) 34,300 1,431,339
- -------------------------------------------------------------------------
Waters Corp.(a) 42,800 1,419,248
=========================================================================
4,186,724
=========================================================================
ENVIRONMENTAL SERVICES-1.06%
Republic Services, Inc. 52,700 1,350,701
=========================================================================
FOOTWEAR-1.06%
Reebok International Ltd. 34,400 1,352,608
=========================================================================
GAS UTILITIES-0.57%
Kinder Morgan, Inc. 12,300 726,930
=========================================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.92%
Dollar General Corp. 31,000 $ 650,690
- -------------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 17,400 523,044
=========================================================================
1,173,734
=========================================================================
HEALTH CARE DISTRIBUTORS-1.59%
Omnicare, Inc. 50,200 2,027,578
=========================================================================
HEALTH CARE EQUIPMENT-2.71%
Bard (C.R.), Inc. 18,600 1,511,250
- -------------------------------------------------------------------------
Hillenbrand Industries, Inc. 21,200 1,315,672
- -------------------------------------------------------------------------
STERIS Corp.(a) 27,500 621,500
=========================================================================
3,448,422
=========================================================================
HEALTH CARE FACILITIES-0.76%
Universal Health Services, Inc.-Class B 17,900 961,588
=========================================================================
HEALTH CARE SERVICES-2.67%
AdvancePCS(a) 8,800 463,408
- -------------------------------------------------------------------------
Caremark Rx, Inc.(a) 58,100 1,471,673
- -------------------------------------------------------------------------
DaVita, Inc.(a) 37,400 1,458,600
=========================================================================
3,393,681
=========================================================================
HEALTH CARE SUPPLIES-1.14%
Fisher Scientific International Inc.(a) 35,100 1,452,087
=========================================================================
HOME FURNISHINGS-0.93%
Tempur-Pedic International Inc.(a) 76,000 1,178,000
=========================================================================
HOMEBUILDING-0.60%
Lennar Corp.-Class A 8,000 768,000
=========================================================================
HOTELS, RESORTS & CRUISE LINES-0.36%
Starwood Hotels & Resorts Worldwide, Inc. 12,900 464,013
=========================================================================
HOUSEWARES & SPECIALTIES-1.06%
Yankee Candle Co., Inc. (The)(a) 49,500 1,352,835
=========================================================================
INDUSTRIAL GASES-0.90%
Airgas, Inc. 53,500 1,149,180
=========================================================================
INDUSTRIAL MACHINERY-2.31%
Parker Hannifin Corp. 23,000 1,368,500
- -------------------------------------------------------------------------
SPX Corp.(a) 26,700 1,570,227
=========================================================================
2,938,727
=========================================================================
INTEGRATED OIL & GAS-0.82%
Murphy Oil Corp. 16,000 1,044,960
=========================================================================
INTERNET SOFTWARE & SERVICES-0.94%
United Online, Inc.(a) 71,550 1,201,324
=========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.23%
iShares Nasdaq Biotechnology Index Fund(a) 4,100 294,995
=========================================================================
LEISURE PRODUCTS-2.24%
Brunswick Corp. 46,800 1,489,644
- -------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
LEISURE PRODUCTS-(CONTINUED)
Hasbro, Inc. 64,300 $ 1,368,304
=========================================================================
2,857,948
=========================================================================
MANAGED HEALTH CARE-0.81%
Coventry Health Care, Inc.(a) 16,000 1,031,840
=========================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.02%
Williams Cos., Inc. (The) 132,500 1,301,150
=========================================================================
OFFICE ELECTRONICS-0.99%
Zebra Technologies Corp.-Class A(a) 19,050 1,264,349
=========================================================================
OFFICE SERVICES & SUPPLIES-1.39%
Moore Wallace Inc. (Canada)(a) 56,300 1,054,499
- -------------------------------------------------------------------------
IKON Office Solutions, Inc. 60,000 711,600
=========================================================================
1,766,099
=========================================================================
OIL & GAS DRILLING-1.25%
Pride International, Inc.(a) 56,800 1,058,752
- -------------------------------------------------------------------------
Rowan Cos., Inc.(a) 23,000 532,910
=========================================================================
1,591,662
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.23%
BJ Services Co.(a) 25,200 904,680
- -------------------------------------------------------------------------
Key Energy Services, Inc.(a) 64,700 667,057
=========================================================================
1,571,737
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.97%
XTO Energy, Inc. 43,700 1,236,710
=========================================================================
PACKAGED FOODS & MEATS-0.54%
Flowers Foods, Inc. 26,500 683,700
=========================================================================
PAPER PACKAGING-2.15%
Sealed Air Corp.(a) 23,900 1,293,946
- -------------------------------------------------------------------------
Smurfit-Stone Container Corp.(a) 78,000 1,448,460
=========================================================================
2,742,406
=========================================================================
PERSONAL PRODUCTS-1.01%
NBTY, Inc.(a) 47,700 1,281,222
=========================================================================
PHARMACEUTICALS-2.92%
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom)(a) 35,900 1,042,895
- -------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 11,300 805,690
- -------------------------------------------------------------------------
Mylan Laboratories Inc. 25,475 643,499
- -------------------------------------------------------------------------
Pharmaceutical Resources, Inc.(a) 18,900 1,231,335
=========================================================================
3,723,419
=========================================================================
PROPERTY & CASUALTY INSURANCE-2.10%
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 08/27/03-11/21/03; Cost
$1,142,820)(a)(c) 114,100 1,312,150
- -------------------------------------------------------------------------
ACE Ltd. (Cayman Islands) 32,807 1,358,866
=========================================================================
2,671,016
=========================================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
PUBLISHING-0.30%
Journal Communications, Inc.-Class A 20,900 $ 387,277
=========================================================================
REAL ESTATE-3.84%
American Financial Realty Trust(b) 88,300 1,505,515
- -------------------------------------------------------------------------
American Financial Realty Trust 11,000 187,550
- -------------------------------------------------------------------------
Fieldstone Investment Corp. (Acquired
11/10/03-11/11/03; Cost $1,146,955)(a)(c) 76,000 1,273,000
- -------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc.-Class
A 83,525 1,927,757
=========================================================================
4,893,822
=========================================================================
REINSURANCE-2.41%
Everest Re Group, Ltd. (Bermuda) 14,400 1,218,240
- -------------------------------------------------------------------------
PartnerRe Ltd. (Bermuda) 11,300 655,965
- -------------------------------------------------------------------------
Platinum Underwriters Holdings, Ltd.
(Bermuda) 39,900 1,197,000
=========================================================================
3,071,205
=========================================================================
RESTAURANTS-1.65%
Brinker International, Inc.(a) 18,400 610,144
- -------------------------------------------------------------------------
Ruby Tuesday, Inc. 52,300 1,490,027
=========================================================================
2,100,171
=========================================================================
SEMICONDUCTOR EQUIPMENT-0.52%
Novellus Systems, Inc.(a) 15,800 664,390
=========================================================================
SEMICONDUCTORS-3.55%
Cypress Semiconductor Corp.(a) 42,000 897,120
- -------------------------------------------------------------------------
GlobespanVirata, Inc.(a) 37,900 222,852
- -------------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 23,100 658,119
- -------------------------------------------------------------------------
Intersil Corp.-Class A 33,100 822,535
- -------------------------------------------------------------------------
Microchip Technology Inc. 36,800 1,227,648
- -------------------------------------------------------------------------
NVIDIA Corp.(a) 30,000 697,500
=========================================================================
4,525,774
=========================================================================
SPECIALTY CHEMICALS-1.00%
Great Lakes Chemical Corp. 46,700 1,269,773
=========================================================================
SPECIALTY STORES-3.11%
Advance Auto Parts, Inc.(a) 19,800 1,611,720
- -------------------------------------------------------------------------
Michaels Stores, Inc. 28,500 1,259,700
- -------------------------------------------------------------------------
Rent-A-Center, Inc.(a) 36,500 $ 1,090,620
=========================================================================
3,962,040
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.98%
CDW Corp. 21,700 1,253,392
=========================================================================
THRIFTS & MORTGAGE FINANCE-5.59%
Doral Financial Corp. (Puerto Rico) 39,450 1,273,446
- -------------------------------------------------------------------------
New Century Financial Corp. 18,200 721,994
- -------------------------------------------------------------------------
New York Community Bancorp, Inc. 39,866 1,516,901
- -------------------------------------------------------------------------
PMI Group, Inc. (The) 35,100 1,306,773
- -------------------------------------------------------------------------
Radian Group Inc. 26,700 1,301,625
- -------------------------------------------------------------------------
Saxon Capital, Inc.(a)(b) 33,400 699,730
- -------------------------------------------------------------------------
Saxon Capital, Inc.(a) 14,100 295,395
=========================================================================
7,115,864
=========================================================================
TRUCKING-1.04%
Sirva Inc.(a) 67,900 1,326,766
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $95,512,878) 122,593,142
=========================================================================
MONEY MARKET FUNDS-6.56%
Liquid Assets Portfolio(d) 4,175,645 4,175,645
- -------------------------------------------------------------------------
STIC Prime Portfolio(d) 4,175,645 4,175,645
=========================================================================
Total Money Market Funds (Cost
$8,351,290) 8,351,290
=========================================================================
TOTAL INVESTMENTS-102.81% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $103,864,168) 130,944,432
=========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-9.59%
Liquid Assets Portfolio(d)(e) 6,104,966 6,104,966
- -------------------------------------------------------------------------
STIC Prime Portfolio(d)(e) 6,104,966 6,104,966
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $12,209,932) 12,209,932
=========================================================================
TOTAL INVESTMENTS-112.40% (Cost $116,074,100) 143,154,364
=========================================================================
OTHER ASSETS LESS LIABILITIES-(12.40%) (15,791,535)
=========================================================================
NET ASSETS-100.00% $127,362,829
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(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 12/31/03 was $3,983,750,
which represented 3.13% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) 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 accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$95,512,878)* $122,593,142
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $20,561,222) 20,561,222
- -------------------------------------------------------------
Receivables for:
Fund shares sold 39,702
- -------------------------------------------------------------
Dividends 111,030
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 29,315
=============================================================
Total assets 143,334,411
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 3,542,841
- -------------------------------------------------------------
Fund shares reacquired 69,212
- -------------------------------------------------------------
Deferred compensation and retirement plans 30,647
- -------------------------------------------------------------
Collateral upon return of securities loaned 12,209,932
- -------------------------------------------------------------
Accrued administrative services fees 71,063
- -------------------------------------------------------------
Accrued distribution fees -- Series II 18,129
- -------------------------------------------------------------
Accrued transfer agent fees 2,550
- -------------------------------------------------------------
Accrued operating expenses 27,208
=============================================================
Total liabilities 15,971,582
=============================================================
Net assets applicable to shares outstanding $127,362,829
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $124,527,972
- -------------------------------------------------------------
Undistributed net investment income (loss) (30,180)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (24,215,227)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 27,080,264
=============================================================
$127,362,829
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 93,813,037
_____________________________________________________________
=============================================================
Series II $ 33,549,792
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,380,848
_____________________________________________________________
=============================================================
Series II 2,653,779
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.71
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.64
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of $11,953,302
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,264) $ 864,075
- ------------------------------------------------------------
Dividends from affiliated money market funds** 113,863
============================================================
Total investment income 977,938
============================================================
EXPENSES:
Advisory fees 735,867
- ------------------------------------------------------------
Administrative services fees 277,771
- ------------------------------------------------------------
Custodian fees 36,467
- ------------------------------------------------------------
Distribution fees -- Series II 53,071
- ------------------------------------------------------------
Transfer agent fees 12,953
- ------------------------------------------------------------
Trustees' fees 9,868
- ------------------------------------------------------------
Other 37,940
============================================================
Total expenses 1,163,937
============================================================
Less: Fees waived and expense offset
arrangements (1,435)
============================================================
Net expenses 1,162,502
============================================================
Net investment income (loss) (184,564)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 5,537,592
- ------------------------------------------------------------
Foreign currencies 187
- ------------------------------------------------------------
Option contracts written 12,513
============================================================
5,550,292
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 24,988,516
- ------------------------------------------------------------
Foreign currencies (126)
============================================================
24,988,390
============================================================
Net gain from investment securities, foreign
currencies and option contracts 30,538,682
============================================================
Net increase in net assets resulting from
operations $30,354,118
____________________________________________________________
============================================================
</Table>
** Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (184,564) $ (94,659)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 5,550,292 (12,264,065)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 24,988,390 (10,808,390)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 30,354,118 (23,167,114)
==========================================================================================
Share transactions-net:
Series I 144,211 (1,892,798)
- ------------------------------------------------------------------------------------------
Series II 11,878,034 14,547,621
==========================================================================================
Net increase in net assets resulting from share
transactions 12,022,245 12,654,823
==========================================================================================
Net increase (decrease) in net assets 42,376,363 (10,512,291)
==========================================================================================
NET ASSETS:
Beginning of year 84,986,466 95,498,757
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(30,180) and $(26,541) for 2003 and 2002,
respectively) $127,362,829 $ 84,986,466
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Capital Development 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
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. 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.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. CAPITAL DEVELOPMENT FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, 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.
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.
I. 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.
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 AIM at the annual rate of 0.75% of the first
$350 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $350 million. AIM has voluntarily agreed
to waive advisory fees of Series I and Series II shares to the extent necessary
to limit the expenses (excluding Rule 12b-1 plan fees, if any, interest, taxes,
fund merger and reorganization expenses, extraordinary items, including other
items designated as such by the Board of Trustees and increases in expenses due
to expense offset arrangements, if any) of each Series to 1.30%. Further, AIM
has voluntarily agreed to waive advisory fees of the Fund in the amount of 25%
of the advisory fee AIM receives from 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 expense limitations may be modified or
discontinued at any time without further notice to investors. For the year ended
December 31, 2003, AIM waived fees of $1,296.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $277,771 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and
AIM V.I. CAPITAL DEVELOPMENT FUND
shareholder services to the Fund. During the year ended December 31, 2003, AISI
retained $14,808 for such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $53,071.
Certain officers and trustees of the Trust are officers 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 and
cash collateral from securities lending transactions in affiliated money market
funds. Each day the prior day's balance invested in the affiliated money market
fund is redeemed in full and a new purchase amount is submitted to invest the
current day's available cash and/or cash collateral received from securities
lending transactions. The table below shows the transactions in and earnings
from investments in affiliated money market funds for the period ended December
31, 2003.
<Table>
<Caption>
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $4,042,207 $ 24,746,929 $24,613,491 $-- $ 4,175,645 $31,790 $--
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 4,042,207 24,746,929 24,613,491 -- 4,175,645 30,850 --
===========================================================================================================================
Subtotal $8,084,414 $ 49,493,858 $49,226,982 $-- $ 8,351,290 $62,640 $--
===========================================================================================================================
</Table>
<Table>
<Caption>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ -- $ 30,579,666 $24,474,700 $-- $ 6,104,966 $ 25,967 $--
- ----------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio -- 30,579,666 24,474,700 -- 6,104,966 25,256 --
============================================================================================================================
Subtotal $ -- $ 61,159,332 $48,949,400 $-- $12,209,932 $ 51,223 $--
============================================================================================================================
Total $8,084,414 $110,653,190 $98,176,382 $-- $20,561,222 $113,863 $--
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$82,976.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$5 and reductions in custodian fees of $134 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $139.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,751
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
AIM V.I. CAPITAL DEVELOPMENT FUND
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving line of 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed line of credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of 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, 2003, securities with an aggregate value of $11,953,302 were
on loan to brokers. The loans were secured by cash collateral of $12,209,932
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2003, the Fund received dividends on cash
collateral net of fees paid to counterparties of $51,223 for securities lending
transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ----------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 129 12,513
- ----------------------------------------------------------
Expired (129) (12,513)
==========================================================
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
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, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments 26,944,668
- -------------------------------------------------------------
Temporary book/tax differences (30,180)
- -------------------------------------------------------------
Capital loss carryforward (24,079,631)
- -------------------------------------------------------------
Shares of beneficial interest 124,527,972
=============================================================
Total net assets $127,362,829
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales and straddles.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund utilized $4,983,066 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 for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2009 $11,926,712
- -----------------------------------------------------------
December 31, 2010 $12,152,919
===========================================================
Total capital loss carryforward $24,079,631
___________________________________________________________
===========================================================
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
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, 2003 was $103,173,977 and $88,377,248, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $27,482,726
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (538,058)
============================================================
Net unrealized appreciation of investment
securities $26,944,668
____________________________________________________________
============================================================
Cost of investments for tax purposes is
$116,209,696.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on December 31, 2003, undistributed net
investment income was increased by $180,925, undistributed net realized gains
decreased by $187 and shares of beneficial interest decreased by $180,738. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 938,089 $ 10,475,808 1,632,368 $ 18,502,411
- ----------------------------------------------------------------------------------------------------------------------
Series II 1,393,053 15,390,421 1,558,305 16,426,876
======================================================================================================================
Reacquired:
Series I (1,012,963) (10,331,597) (1,941,781) (20,395,209)
- ----------------------------------------------------------------------------------------------------------------------
Series II (337,849) (3,512,387) (191,525) (1,879,255)
======================================================================================================================
980,330 $ 12,022,245 1,057,367 $ 12,654,823
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.39 $ 11.94 $ 12.99 $ 11.89 $ 9.21
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.01)(a) (0.02) (0.01)(a) (0.03)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.33 (2.54) (1.03) 1.11 2.71
================================================================================================================================
Total from investment operations 3.32 (2.55) (1.05) 1.10 2.68
================================================================================================================================
Net asset value, end of period $ 12.71 $ 9.39 $ 11.94 $ 12.99 $ 11.89
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 35.36% (21.36)% (8.08)% 9.25% 29.10%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $93,813 $70,018 $92,732 $74,874 $11,035
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 1.13%(c) 1.14% 1.16% 1.19%(d) 1.23%(d)
================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.13)%(c) (0.08)% (0.16)% (0.07)% (0.32)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 95% 121% 125% 110% 132%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges at the separate account level which if included would reduce
total returns for all periods shown.
(c) Ratios are based on average daily net assets of $76,887,300.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 1.38% and 3.42% for the years ended December 31, 2000 and
December 31, 1999, respectively.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------
YEAR ENDED DECEMBER AUGUST 21, 2001 (DATE
31, SALES COMMENCED) TO
--------------------- DECEMBER 31,
2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.36 $ 11.94 $11.88
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.03)(a) (0.01)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.31 (2.55) 0.07
===============================================================================================================
Total from investment operations 3.28 (2.58) 0.06
===============================================================================================================
Net asset value, end of period $ 12.64 $ 9.36 $11.94
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 35.04% (21.61)% 0.50%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $33,550 $14,969 $2,767
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets 1.38%(c) 1.39% 1.41%(d)
===============================================================================================================
Ratio of net investment income (loss) to average net assets (0.38)%(c) (0.33)% (0.41)%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 95% 121% 125%
_______________________________________________________________________________________________________________
===============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level and these charges would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $21,228,344.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
AIM V.I. CAPITAL DEVELOPMENT FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. CAPITAL DEVELOPMENT FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds:
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Capital Development Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2003, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the years or periods in the five
year period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Capital Development Fund as of December 31, 2003, the results of its
operations for the year then ended, and 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 years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. CAPITAL DEVELOPMENT FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- --------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and Fund
Management Company (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. and
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
- --------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- --------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- --------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (Chairman) (registered
(private investment and management) and Magellan investment company);
Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Administaff, Discovery
Trustee Group, Inc. (government affairs company) and Texana Global Education Fund
Timber LP (sustainable forestry company) (non-profit)
- --------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. CAPITAL DEVELOPMENT FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel, Liberty
Funds Group, LLC
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
AIM V.I. CAPITAL DEVELOPMENT FUND
AIM V.I. CORE EQUITY FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. CORE EQUITY FUND seeks growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. CORE EQUITY FUND
BROAD-BASED STOCK
MARKET RALLY BENEFITS FUND
For the year ended December 31, 2003, During this rally, the United States prices of finished goods and services
AIM V.I. Core Equity Fund Series I and and its allies took military action remained fairly stable, retail spending
Series II shares returned 24.42% and against Iraq and toppled the regime of increased on a year-over-year basis,
24.15%, respectively. For the same Saddam Hussein. The nation's gross manufacturing activity picked up, and
period, the fund's broad market index, domestic product, generally considered residential real estate activity remained
the S&P 500--Registered Trademark-- the broadest measure of economic strong while commercial real estate
Index, returned 28.67%; its activity, expanded at an annualized rate activity remained weak.
style-specific index, the Russell of 1.4% in the first quarter, 3.1% in the
1000--Registered Trademark-- Index, second quarter, 8.2% in the third YOUR FUND
returned 29.89%; and its peer group quarter, and 4.0% in the fourth quarter
index, the Lipper Large-Cap Core Fund of 2003. According to Bloomberg, as of The fund benefited from the broad-based
Index, returned 24.80%. The fund the close of the year, approximately 64% stock market rally. Virtually all of the
underperformed the S&P 500 Index largely of the companies in the S&P 500 Index had fund's underperformance relative to its
because of our underweight position in reported third-quarter earnings that indexes was the result of our being
the financials sector. As the year exceeded analysts' expectations. underweight financial services stocks.
ended, we remained underweight The economic recovery that the market
financials stocks due to our belief that For the first half of the year, the anticipated in 2003 significantly
the financial statements of many Federal Reserve (the Fed) kept the affected economically sensitive
companies in the sector are fraught with short-term federal funds rate at 1.25%. financials stocks. We were underweight
uncertainty. On June 25, 2003, it reduced that rate to the sector in part because we did not
1.00%, its lowest level since 1958. At anticipate such a quick and broad-based
MARKET CONDITIONS the time, the Fed said it favored a more economic recovery.
expansive monetary policy because the
As noted above, the S&P 500 Index economy had not yet exhibited sustainable The fund began the year in a
provided positive returns for the year growth. By October, the Fed reported that defensive posture-overweight consumer
ended December 31, 2003. It declined at economic expansion had increased and staples and pharmaceuticals stocks
the beginning of 2003, dropping to its consumer spending was generally stronger, relative to our index. During the year,
lowest level of the year on March 11, and although the job market remained weak. we purchased some industry-leading
then rallied. All sectors of the S&P 500 The Fed's November Beige Book report information technology stocks and added
Index recorded gains for the year. cited "reasonably broad based" economic to our industrials holdings as a means of
Information technology, materials, and expansion in October and early November increasing the fund's economic
consumer discretionary were the and noted that in most Federal Reserve sensitivity. Before the year ended,
top-performing sectors while districts wages and the however, we sold many of our information
telecommunications services, consumer technology holdings at substantial gains.
staples, and health care were the As a result, the fund ended the year
weakest-performing sectors. somewhat where it began-overweight the
consumer staples and energy sectors and
the pharmaceutical industry. Our holdings
in these sectors and industries are
consistent
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Computer Associates
International, Inc. 2.8% 1. Pharmaceuticals 10.4% Total returns 12/31/02-12/31/03,
2. Pfizer Inc. 2.6 2. Packaged Foods & Meats 10.4 excluding product issuer charges
3. General Mills, Inc. 2.5 3. Integrated Oil & Gas 6.4
4. Microsoft Corp. 2.1 4. Systems Software 5.6 Series I Shares 24.42%
5. Kellogg Co. 1.9 5. Semiconductors 4.5 Series II Shares 24.15
6. Sara Lee Corp. 1.9 6. Industrial Machinery 3.5 S&P 500 Index 28.67
7. Citigroup Inc. 1.9 7. Other Diversified Financial Services 3.1 (Broad Market Index)
8. Xilinx, Inc. 1.9 8. Property & Casualty Insurance 3.0 Russell 1000--Registered
9. Intel Corp. 1.8 9. Food Retail 2.9 Trademark-- Index 29.89
10. Dover Corp. 1.8 10. Data Processing (Style-specific Index)
& Outsourced Services 2.7 Lipper Large-Cap Core Fund Index 24.80
(Peer Group Index)
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 69
TOTAL NET ASSETS $1.6 billion
====================================================================================================================================
</Table>
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
<Table>
AIM V.I. CORE EQUITY FUND
with our view that long-term RESULTS OF A $10,000 INVESTMENTS
outperformance comes from holding 5/2/94-12/31/03
quality, high return-on-capital Index data from 4/30/94
companies.
[LINE CHART]
Three factors aided fund performance
during the year: the fund's overweight S&P 500 RUSSELL 1000 LIPPER LARGE-CAP AIM V.I. CORE EQUITY
position in the energy sector, individual INDEX INDEX CORE FUND INDEX FUND-SERIES I SHARES
stock selection within the consumer
discretionary sector, and our focus on 5/2/1994 10000 10000 10000 10000
industry-leading information technology 12/31/1994 10397 10327 10140 9999
companies. Individual stocks that 12/31/1995 14299 14227 13361 13388
affected fund performance for the year 12/31/1996 17580 17421 16012 16057
included McDonald's, which helped, and 12/31/1997 23443 23144 20691 20187
Raytheon, which detracted. 12/31/1998 30148 29398 26264 25774
12/31/1999 36489 35545 31345 34597
McDonald's "super sized" its earnings 12/31/2000 33167 32777 29036 29561
after undertaking a revitalization plan 12/31/2001 29228 28696 25309 22813
early in 2003, reporting double-digit 12/31/2002 22771 22483 19935 19257
sales growth in each of the last five 12/31/2003 29299 29203 24880 23960
months of the year. McDonald's operates
more than 30,000 restaurants worldwide, Source: Lipper, Inc.
serving more than 47 million customers
daily in more than 100 countries. We sold Past performance cannot guarantee comparable future results.
our McDonald's holdings before the close
of the year. 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
Raytheon, a leader in defense, always represents the same percent change in price; in a linear chart each scale
electronics, information technology, increment always represents the same absolute change in price. In this example,
aviation, and space, performed poorly for the scale increment between $5,000 and $10,000 is the same as that between
the fund in 2003. While we believe that $10,000 and $20,000. In a linear chart, the latter scale increment would be
much is going right with the company, we twice as large. The benefit of using a logarithmic scale is that it better
were concerned that pension underfunding illustrates performance during the fund's early years before reinvested
may continue to hurt the stock for some distributions and compounding create the potential for the original investment
time. As a result, we eliminated our to grow to very large numbers. Had the chart used a linear scale along its
position in the stock before year end. 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. AIM uses a
IN CLOSING logarithmic scale in financial reports of funds that have more than five years
of performance history.
We were pleased to be able to provide
shareholders with positive returns during *Series II shares were first offered The unmanaged Russell 1000 Index
the fiscal year by investing in the 10/24/01. Returns prior to that date are represents the performance of the stocks
stocks of established companies with the hypothetical results based on the of large-capitalization companies.
potential for long-term, above-average performance of Series I shares (inception
growth in earnings and dividends, as well date 5/2/94), adjusted to reflect Series The unmanaged Standard & Poor's
as growth companies with the potential II 12b-1 fees. The Series I and Series II Composite Index of 500 Stocks (the S&P
for above-average growth in earnings and shares invest in the same portfolio of 500 Index) is an index of common stocks
dividends. securities and will have substantially frequently used as a general measure of
similar performance, except to the extent U.S. stock market performance.
---------- that expenses borne by each class differ.
Bloomberg, Inc., is a well-known
AVERAGE ANNUAL TOTAL RETURNS Current performance may be lower or independent financial research and
- ----------------------------------------- higher than the performance data quoted. reporting firm.
As of 12/31/03 Past performance cannot guarantee
comparable future results. Due to A direct investment cannot be made in
SERIES I SHARES significant market volatility, results of an index. Unless otherwise indicated,
Inception (5/2/94) 9.46% an investment made today may differ index results include reinvested
5 Years -1.45 substantially from the historical dividends, and they do not reflect sales
1 Year 24.42 performance shown. Please see your charges. Performance of an index of funds
financial advisor for more current reflects fund expenses; performance of a
SERIES II SHARES* performance. Fund performance figures are market index does not.
Inception 9.19% historical, and they reflect fund
5 Years -1.69 expenses, the reinvestment of Industry classifications used in this
1 Year 24.15 distributions and changes in net asset report are generally according to the
value. The fund's investment return and Global Industry Classification Standard,
principal value will fluctuate, so an which was developed by and is the
investor's shares, when redeemed, may be exclusive property and a service mark of
worth more or less than their original Morgan Stanley Capital International Inc.
cost. and Standard & Poor's.
AIM Variable Insurance Funds are A description of the policies and
offered through insurance company procedures that the Fund uses to
separate accounts to fund variable determine how to vote proxies relating to
annuity contracts and variable life portfolio securities is available without
insurance policies, and through certain charge, upon request, by calling
pension or retirement plans. Performance 800-959-4246, or on the AIM Web site,
figures given represent the fund and are AIMinvestments.com.
not intended to reflect actual variable
product values. They do not reflect sales
charges, expenses and fees at the
separate account level. Sales charges,
expenses and fees, which are determined
by the product issuers, will vary and
will lower the total return.
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Lipper Large-Cap Core Fund ========================================
Index represents an average of the PORTFOLIO MANAGEMENT TEAM
performance of the 30 largest AS OF 12/31/03
large-capitalization core funds tracked Ronald S. Sloan, Lead Manager
by Lipper, Inc., an independent mutual Assisted by the Mid/Large Cap Core Team
fund performance monitor. ========================================
VICEQ-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-92.03%
ADVERTISING-1.17%
Omnicom Group Inc. 208,400 $ 18,199,572
==========================================================================
AEROSPACE & DEFENSE-2.29%
Lockheed Martin Corp. 223,000 11,462,200
- --------------------------------------------------------------------------
Northrop Grumman Corp. 253,700 24,253,720
==========================================================================
35,715,920
==========================================================================
APPAREL RETAIL-1.76%
Limited Brands 1,520,000 27,405,600
==========================================================================
APPLICATION SOFTWARE-0.86%
SAP A.G.-ADR (Germany) 322,600 13,407,256
==========================================================================
BUILDING PRODUCTS-2.25%
American Standard Cos. Inc.(a) 203,400 20,482,380
- --------------------------------------------------------------------------
Masco Corp. 532,100 14,584,861
==========================================================================
35,067,241
==========================================================================
COMPUTER HARDWARE-1.37%
International Business Machines Corp. 231,100 21,418,348
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.68%
Automatic Data Processing, Inc. 613,900 24,316,579
- --------------------------------------------------------------------------
First Data Corp. 425,000 17,463,250
==========================================================================
41,779,829
==========================================================================
DIVERSIFIED BANKS-1.24%
Bank of America Corp. 240,100 19,311,243
==========================================================================
DIVERSIFIED CHEMICALS-1.03%
Dow Chemical Co. (The) 385,100 16,008,607
==========================================================================
ELECTRIC UTILITIES-1.40%
FPL Group, Inc. 194,800 12,743,816
- --------------------------------------------------------------------------
TXU Corp. 385,100 9,134,572
==========================================================================
21,878,388
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.65%
Emerson Electric Co. 396,400 25,666,900
==========================================================================
ENVIRONMENTAL SERVICES-1.24%
Waste Management, Inc. 652,400 19,311,040
==========================================================================
FOOD RETAIL-2.92%
Kroger Co. (The)(a) 1,500,000 27,765,000
- --------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
FOOD RETAIL-(CONTINUED)
Safeway Inc.(a) 810,000 $ 17,747,100
==========================================================================
45,512,100
==========================================================================
FOOTWEAR-1.06%
NIKE, Inc.-Class B 242,100 16,574,166
==========================================================================
HEALTH CARE FACILITIES-1.13%
HCA Inc. 410,000 17,613,600
==========================================================================
HEALTH CARE SUPPLIES-1.52%
Alcon, Inc. (Switzerland) 391,900 23,725,626
==========================================================================
HOTELS, RESORTS & CRUISE LINES-1.41%
Carnival Corp. (Panama) 555,000 22,050,150
==========================================================================
HOUSEHOLD PRODUCTS-1.17%
Kimberly-Clark Corp. 308,100 18,205,629
==========================================================================
HOUSEWARES & SPECIALTIES-1.32%
Newell Rubbermaid Inc. 906,100 20,631,897
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.77%
Wal-Mart Stores, Inc. 226,500 12,015,825
==========================================================================
INDUSTRIAL CONGLOMERATES-1.60%
Tyco International Ltd. (Bermuda) 942,000 24,963,000
==========================================================================
INDUSTRIAL MACHINERY-3.47%
Dover Corp. 704,900 28,019,775
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 310,300 26,037,273
==========================================================================
54,057,048
==========================================================================
INTEGRATED OIL & GAS-6.36%
BP PLC-ADR (United Kingdom) 362,400 17,884,440
- --------------------------------------------------------------------------
ChevronTexaco Corp. 235,600 20,353,484
- --------------------------------------------------------------------------
ConocoPhillips 276,400 18,123,548
- --------------------------------------------------------------------------
Exxon Mobil Corp. 555,000 22,755,000
- --------------------------------------------------------------------------
Occidental Petroleum Corp. 475,700 20,093,568
==========================================================================
99,210,040
==========================================================================
INVESTMENT BANKING & BROKERAGE-1.40%
Morgan Stanley 376,000 21,759,120
==========================================================================
LIFE & HEALTH INSURANCE-1.44%
Prudential Financial, Inc. 539,100 22,518,207
==========================================================================
OIL & GAS DRILLING-1.08%
GlobalSantaFe Corp. (Cayman Islands) 679,600 16,874,468
==========================================================================
</Table>
AIM V.I. CORE EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.12%
Baker Hughes Inc. 543,700 $ 17,485,392
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.07%
Citigroup Inc. 611,600 29,687,064
- --------------------------------------------------------------------------
Principal Financial Group, Inc. 550,500 18,205,035
==========================================================================
47,892,099
==========================================================================
PACKAGED FOODS & MEATS-10.42%
Campbell Soup Co. 915,200 24,527,360
- --------------------------------------------------------------------------
ConAgra Foods, Inc. 602,700 15,905,253
- --------------------------------------------------------------------------
General Mills, Inc. 850,000 38,505,000
- --------------------------------------------------------------------------
Kellogg Co. 795,100 30,277,408
- --------------------------------------------------------------------------
Kraft Foods Inc.-Class A 724,900 23,356,278
- --------------------------------------------------------------------------
Sara Lee Corp. 1,379,600 29,951,116
==========================================================================
162,522,415
==========================================================================
PERSONAL PRODUCTS-1.20%
Gillette Co. (The) 507,400 18,636,802
==========================================================================
PHARMACEUTICALS-10.44%
Abbott Laboratories 357,900 16,678,140
- --------------------------------------------------------------------------
Bristol-Myers Squibb Co. 656,900 18,787,340
- --------------------------------------------------------------------------
Johnson & Johnson 456,000 23,556,960
- --------------------------------------------------------------------------
Merck & Co. Inc. 505,000 23,331,000
- --------------------------------------------------------------------------
Pfizer Inc. 1,165,000 41,159,450
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 262,800 14,903,388
- --------------------------------------------------------------------------
Wyeth 575,400 24,425,730
==========================================================================
162,842,008
==========================================================================
PROPERTY & CASUALTY INSURANCE-3.02%
ACE Ltd. (Cayman Islands) 464,400 19,235,448
- --------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class A 388,082 6,512,016
- --------------------------------------------------------------------------
Travelers Property Casualty Corp.-Class B 477,601 8,104,889
- --------------------------------------------------------------------------
XL Capital Ltd.-Class A (Cayman Islands) 170,000 13,183,500
==========================================================================
47,035,853
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
PUBLISHING-2.32%
Gannett Co., Inc. 203,900 $ 18,179,724
- --------------------------------------------------------------------------
New York Times Co. (The)-Class A 375,000 17,921,250
==========================================================================
36,100,974
==========================================================================
RAILROADS-1.91%
Norfolk Southern Corp. 604,400 14,294,060
- --------------------------------------------------------------------------
Union Pacific Corp. 222,000 15,424,560
==========================================================================
29,718,620
==========================================================================
SEMICONDUCTORS-4.46%
Intel Corp. 887,800 28,587,160
- --------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 1,143,752 11,712,020
- --------------------------------------------------------------------------
Xilinx, Inc.(a) 754,300 29,221,582
==========================================================================
69,520,762
==========================================================================
SOFT DRINKS-1.15%
Coca-Cola Co. (The) 353,400 17,935,050
==========================================================================
SYSTEMS SOFTWARE-5.58%
Computer Associates International, Inc. 1,575,000 43,060,500
- --------------------------------------------------------------------------
Microsoft Corp. 1,172,100 32,279,634
- --------------------------------------------------------------------------
Oracle Corp.(a) 888,000 11,721,600
==========================================================================
87,061,734
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.75%
Washington Mutual, Inc. 680,000 27,281,600
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,251,272,390) 1,434,914,129
==========================================================================
MONEY MARKET FUNDS-8.86%
Liquid Assets Portfolio(b) 69,099,940 69,099,940
- --------------------------------------------------------------------------
STIC Prime Portfolio(b) 69,099,940 69,099,940
==========================================================================
Total Money Market Funds (Cost
$138,199,880) 138,199,880
==========================================================================
TOTAL INVESTMENTS-100.89% (Cost
$1,389,472,270) 1,573,114,009
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.89%) (13,830,872)
==========================================================================
NET ASSETS-100.00% $1,559,283,137
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$1,251,272,390) $1,434,914,129
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $138,199,880) 138,199,880
- -------------------------------------------------------------
Receivables for:
Fund shares sold 18,029
- -------------------------------------------------------------
Dividends 1,995,155
- -------------------------------------------------------------
Investment matured (Note 9) 185,000
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 96,735
=============================================================
Total assets 1,575,408,928
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 13,363,527
- -------------------------------------------------------------
Fund shares reacquired 1,663,427
- -------------------------------------------------------------
Deferred compensation and retirement plans 144,552
- -------------------------------------------------------------
Accrued administrative services fees 885,812
- -------------------------------------------------------------
Accrued distribution fees -- Series II 2,246
- -------------------------------------------------------------
Accrued transfer agent fees 1,692
- -------------------------------------------------------------
Accrued operating expenses 64,535
=============================================================
Total liabilities 16,125,791
=============================================================
Net assets applicable to shares outstanding $1,559,283,137
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,778,653,359
- -------------------------------------------------------------
Undistributed net investment income 7,031,694
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (410,043,655)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 183,641,739
=============================================================
$1,559,283,137
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,555,474,651
_____________________________________________________________
=============================================================
Series II $ 3,808,486
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 74,288,240
_____________________________________________________________
=============================================================
Series II 182,681
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 20.94
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 20.85
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$110,048) $ 22,794,733
- -------------------------------------------------------------
Dividends from affiliated money market funds* 1,579,460
- -------------------------------------------------------------
Interest 295
=============================================================
Total investment income 24,374,488
=============================================================
EXPENSES:
Advisory fees 8,597,730
- -------------------------------------------------------------
Administrative services fees 2,696,121
- -------------------------------------------------------------
Custodian fees 99,351
- -------------------------------------------------------------
Distribution fees -- Series II 7,206
- -------------------------------------------------------------
Transfer agent fees 20,908
- -------------------------------------------------------------
Trustees' fees 25,528
- -------------------------------------------------------------
Other 109,212
=============================================================
Total expenses 11,556,056
=============================================================
Less: Fees waived and expense offset
arrangements (72,099)
=============================================================
Net expenses 11,483,957
=============================================================
Net investment income 12,890,531
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (24,973,066)
- -------------------------------------------------------------
Foreign currencies 318
=============================================================
(24,972,748)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 324,404,877
- -------------------------------------------------------------
Foreign currencies (226)
=============================================================
324,404,651
=============================================================
Net gain from investment securities and foreign
currencies 299,431,903
=============================================================
Net increase in net assets resulting from
operations $312,322,434
_____________________________________________________________
=============================================================
</Table>
* Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 12,890,531 $ 10,974,436
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (24,972,748) 69,758,275
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 324,404,651 (368,823,794)
==============================================================================================
Net increase (decrease) in net assets resulting from
operations 312,322,434 (288,091,083)
==============================================================================================
Distributions to shareholders from net investment income:
Series I (14,186,491) (5,105,648)
- ----------------------------------------------------------------------------------------------
Series II (31,366) (7,025)
==============================================================================================
Decrease in net assets resulting from distributions (14,217,857) (5,112,673)
==============================================================================================
Share transactions-net:
Series I (127,008,381) (238,832,022)
- ----------------------------------------------------------------------------------------------
Series II 1,187,509 1,760,027
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (125,820,872) (237,071,995)
==============================================================================================
Net increase (decrease) in net assets 172,283,705 (530,275,751)
==============================================================================================
NET ASSETS:
Beginning of year 1,386,999,432 1,917,275,183
==============================================================================================
End of year (including undistributed net investment income
of $7,031,694 and $8,358,703 for 2003 and 2002,
respectively) $1,559,283,137 $1,386,999,432
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. 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
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. 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.
The Fund's investment objective is growth of capital. Each company listed in
the Schedule of Investments is organized in the United States of America unless
otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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
AIM V.I. CORE EQUITY FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. 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.
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 AIM at the annual rate of 0.65% of the first
$250 million of the Fund's average daily net assets, plus 0.60% of the Fund's
average daily net assets in excess of $250 million. AIM has voluntarily agreed
to waive fees and /or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
Voluntary expense limitations may be modified or discontinued at any time
without further notice to investors. 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, if
any). For the year ended December 31, 2003, AIM waived fees of $71,875.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $2,696,121 for such
services, of which AIM retained $334,788 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $22,142 for
such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $7,206.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. CORE EQUITY FUND
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 and
cash collateral from securities lending transactions in affiliated money market
funds. Each day the prior day's balance invested in the affiliated money market
fund is redeemed in full and a new purchase amount is submitted to invest the
current day's available cash and/or cash collateral received from securities
lending transactions. The table below shows the transactions in and earnings
from investments in affiliated money market funds for the period ended December
31, 2003.
<Table>
<Caption>
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 96,918,925 $136,007,630 $(163,826,615) $ -- $ 69,099,940 $ 757,478 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 96,918,925 136,007,630 (163,826,615) -- 69,099,940 734,757 --
===================================================================================================================================
Subtotal $193,837,850 $272,015,260 $(327,653,230) $ -- $138,199,880 $ 1,492,235 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
<Table>
<Caption>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ -- $106,778,000 $(106,778,000) $ -- $ -- $ 87,225 $ --
=================================================================================================================================
Total $193,837,850 $378,793,260 $(434,431,230) $ -- $138,199,880 $ 1,579,460 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$36,551.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agent fees from AISI (an affiliate of AIM) of $2
and reductions in custodian fees of $222 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $224.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $7,420
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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
AIM V.I. CORE EQUITY FUND
earning the additional interest; or (ii) compensate by paying the custodian
bank. In either case, the custodian bank will be compensated an amount equal to
the Federal Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of 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, 2003, there were no securities on loan to brokers. For the
year ended December 31, 2003, the Fund received dividends on cash collateral net
of fees paid to counterparties of $87,225 for securities lending transactions.
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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------
Distributions paid from ordinary
income $14,217,857 $5,112,673
_______________________________________________________________
===============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 14,209,716
- -------------------------------------------------------------
Unrealized appreciation -- investments 159,268,281
- -------------------------------------------------------------
Temporary book/tax differences (124,411)
- -------------------------------------------------------------
Capital loss carryforward (392,723,808)
- -------------------------------------------------------------
Shares of beneficial interest 1,778,653,359
=============================================================
Total net assets $1,559,283,137
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales and the treatment of defaulted bonds.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2008 $ 852,667
- -----------------------------------------------------------
December 31, 2009 370,653,287
- -----------------------------------------------------------
December 31, 2011 21,217,854
===========================================================
Total capital loss carryforward $392,723,808
___________________________________________________________
===========================================================
</Table>
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, 2003 was $391,409,028 and $473,053,351, 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 $18,500,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00%, which was due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $200,024,743
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (40,756,462)
=============================================================
Net unrealized appreciation of investment
securities $159,268,281
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $1,413,845,728.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2003, undistributed net investment income was
increased by $317 and undistributed net realized gains decreased by $317. This
reclassification had no effect on the net assets of the Fund.
AIM V.I. CORE EQUITY FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,752,378 $ 32,165,026 2,711,007 $ 51,401,798
- ----------------------------------------------------------------------------------------------------------------------
Series II 155,224 2,728,158 131,069 2,388,530
======================================================================================================================
Issued as reinvestment of dividends:
Series I 702,995 14,186,491 299,627 5,105,648
- ----------------------------------------------------------------------------------------------------------------------
Series II 1,561 31,366 413 7,025
======================================================================================================================
Reacquired:
Series I (9,709,887) (173,359,898) (16,363,086) (295,339,468)
- ----------------------------------------------------------------------------------------------------------------------
Series II (89,175) (1,572,015) (36,224) (635,528)
======================================================================================================================
(7,186,904) $(125,820,872) (13,257,194) $(237,071,995)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.99 $ 20.20 $ 26.19 $ 31.59 $ 23.75
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.17(a) 0.12(a) 0.03(b) 0.01(a) 0.06(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.97 (3.27) (6.01) (4.56) 8.05
=================================================================================================================================
Total from investment operations 4.14 (3.15) (5.98) (4.55) 8.11
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.19) (0.06) (0.01) (0.04) (0.16)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.81) (0.11)
=================================================================================================================================
Total distributions (0.19) (0.06) (0.01) (0.85) (0.27)
=================================================================================================================================
Net asset value, end of period $ 20.94 $ 16.99 $ 20.20 $ 26.19 $ 31.59
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 24.42% (15.58)% (22.83)% (14.56)% 34.25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,555,475 $1,385,050 $1,916,875 $2,514,262 $2,443,264
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.81%(d)(e) 0.78% 0.82% 0.84% 0.77%
=================================================================================================================================
Ratio of net investment income to average net assets 0.91%(d) 0.67% 0.12%(b) 0.04% 0.22%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 31% 113% 73% 75% 93%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been remained unchanged and the ratio of net investment income to
average net assets would have been 0.13%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to January 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges at the separate account level which if included would reduce
total returns for all periods shown.
(d) Ratios are based on average daily net assets of $1,409,239,314.
(e) After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or expenses reimbursements was
0.82%.
AIM V.I. CORE EQUITY FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------
OCTOBER 24, 2001
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
---------------------- DECEMBER 31,
2003 2002 2001
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.94 $ 20.19 $18.97
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.12(a) 0.07(a) (0.00)
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.96 (3.26) 1.23
==========================================================================================================
Total from investment operations 4.08 (3.19) 1.23
==========================================================================================================
Less dividends from net investment income (0.17) (0.06) (0.01)
==========================================================================================================
Net asset value, end of period $20.85 $ 16.94 $20.19
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 24.15% (15.79)% 6.49%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,808 $ 1,949 $ 400
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets 1.06%(c)(d) 1.03% 1.03%(e)
==========================================================================================================
Ratio of net investment income (loss) to average net assets 0.66%(c) 0.42% (0.10)%(e)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(f) 31% 113% 73%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $2,882,370.
(d) After fee waivers and/or reimbursements. Ratio of expenses to average
net assets prior to fee waivers and/or expenses reimbursements was
1.07%.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. CORE EQUITY FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. CORE EQUITY FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Core Equity Fund, formerly AIM V.I. Growth and Income Fund, a series of shares
of beneficial interest of AIM Variable Insurance Funds, including the schedule
of investments as of December 31, 2003, the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
years or periods in the five year period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Core Equity Fund as of December 31, 2003, 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 years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. CORE EQUITY FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M None
Trustee, Chairman and President Management Group Inc. (financial
services holding company); and
Director and Vice Chairman, AMVESCAP
PLC and Chairman of 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 None
Trustee and Executive Vice President Executive 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), and Fund Management Company
(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.
and 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
- ---------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & Badgley Funds, Inc.
Trustee McKenzie (registered investment
company)
Formerly: Partner, law firm of Baker
& McKenzie
- ---------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology ACE Limited (insurance
Trustee Associates (technology consulting company); and
company) Captaris, Inc.
(unified messaging
provider)
- ---------------------------------------------------------------------------------------------------------------------------
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. investment company);
(private investment and management) Annuity and Life Re
and Magellan 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 Administaff, Discovery
Trustee First Century Group, Inc. Global Education Fund
(government affairs company) and (non-profit)
Texana Timber LP (sustainable
forestry company)
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. CORE EQUITY FUND
Trustees and Officers (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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)
- --------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, None
Trustee YWCA 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 -- 1939 1993 Executive Vice President, Development None
Trustee and Operations Hines Interests Limited
Partnership (real estate development
company)
- --------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President and Secretary and General Counsel, A I M
Chief Legal Officer Management Group Inc. (financial
services holding company) and A I M
Advisors, Inc.; Vice President, A I M
Capital Management, Inc., A I M
Distributors, Inc. and AIM Investment
Services, Inc.; and Director, Vice
President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC
- --------------------------------------------------------------------------------------------------------------------
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 N/A
Vice President Money Market Research and Special
Projects, A I M Capital Management,
Inc.; and Vice President, A I M
Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance N/A
Vice President Officer, A I M Advisors, Inc. and
A I M Capital Management, Inc.; and
Vice President, AIM Investment
Services, Inc.
- --------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President and Treasurer A I M Advisors, Inc.; Senior Vice
President, AIM Investment Services,
Inc.; and Vice President, A I M
Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management N/A
Vice President Officer, A I M Capital Management,
Inc; Director and President, Fund
Management Company; and Vice
President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., N/A
Vice President and President, Chief Executive Officer
and Chief Investment Officer, A I M
Capital Management, Inc.
- --------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 100.00% is eligible for the dividends received deduction for
corporations.
AIM V.I. CORE EQUITY FUND
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND seeks to
provide long-term growth of capital.
YOUR GOALS.OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
CYCLICAL STOCKS stable, retail spending increased on a
BENEFIT FUND PERFORMANCE yearover- year basis, manufacturing
activity picked up, and residential real
For the year ended December 31, 2003, toppled the regime of Saddam Hussein. estate activity remained strong while
AIM V.I. Dent Demographic Trends Fund The nation's gross domestic product, commercial real estate activity remained
Series I and Series II shares returned generally considered the broadest weak.
37.47% and 37.30%, respectively. For the measure of economic activity, expanded
same period, the fund's broad market at an annualized rate of 1.4% in the YOUR FUND
index, the S&P 500--Registered first quarter, 3.1% in the second
Trademark-- Index, returned 28.67%; its quarter, 8.2% in the third quarter, and During the year, and in keeping with the
style-specific index, the Russell 4.0% in the fourth quarter of 2003. fund's investment strategy, we continued
3000--Registered Trademark-- Growth According to Bloomberg, as of the close to emphasize stocks in the information
Index, returned 30.97%; and its peer of the year, approximately 64% of the technology, financials, health care, and
group index, the Lipper Multi-Cap Growth companies in the S&P 500 Index had consumer discretionary sectors. We did
Fund Index, returned 35.38%. The fund reported third-quarter earnings that so because, in the long term, we believe
outperformed the S&P 500 Index because exceeded analysts' expectations. they are most likely to benefit from
economically sensitive stocks generally changing demographic, economic, and
outperformed less cyclical stocks, and For the first half of the year, the lifestyle trends. Emphasizing those
because the fund held a number of mid- Federal Reserve (the Fed) kept the sectors helped fund performance, since
and small-cap stocks, which generally short-term federal funds rate at 1.25%. those sectors performed well during the
outperformed large-cap stocks for the On June 25, 2003, it reduced that rate year-as did stocks in the industrials
year. to 1.00%, its lowest level since 1958. sector, in which we owned very little.
At the time, the Fed said it favored a Our underweight position in the
more expansive monetary policy because industrials sector hindered fund
MARKET CONDITIONS the economy had not yet exhibited performance.
sustainable growth.
The S&P 500 Index declined at the As of the close of the year,
beginning of 2003, dropping to its By October, the Fed reported that information technology, health care,
lowest level of the year on March 11, economic expansion had increased and consumer discretionary, and financials
and then rallied. All sectors of the S&P consumer spending was generally stocks accounted for approximately 91%
500 Index recorded gains for the year. stronger, although the job market of the fund's total net assets. Also,
Information technology, materials, and remained weak. The Fed's November Beige large-cap, mid-cap, and small-cap stocks
consumer discretionary were the Book report cited "reasonably accounted for approximately 62%, 28%,
top-performing sectors while broad-based" economic expansion in and 10%, respectively, of the fund's
telecommunication services, consumer October and early November and noted total net assets at the end of the year.
staples, and health care were the that in most Federal Reserve districts, Among individual holdings:
weakest-performing sectors. wages and the prices of finished goods
and services remained fairly o Cisco, a leader in computer networking
During this rally, the United States for the Internet, was the fund's top
and its allies took military action contributor for the year. Cisco
against Iraq and announced in November that its revenues
and earnings increased from the
</Table>
<Table>
<Caption>
===================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- -----------------------------------------------------------------------------------------------------------------------------------
1. Cisco Systems, Inc. 3.0% 1. Communications Equipment 8.4% Total returns 12/31/02-12/31/03,
2. Analog Devices, Inc. 2.5 2. Semiconductors 7.3 excluding product issuer charges
3. Novellus Systems, Inc. 2.4 3. Systems Software 7.1
4. VERITAS Software Corp. 2.2 4. Pharmaceuticals 4.9 Series I Shares 37.47%
5. Microsoft Corp. 2.0 5. Health Care Equipment 4.7 Series II Shares 37.30
6. Goldman Sachs Group, Inc. (The) 2.0 6. Biotechnology 3.9 S&P 500 Index
7. Boston Scientific Corp. 1.8 7. Investment Banking & Brokerage 3.8 (Broad Market Index) 28.67
8. Citigroup Inc. 1.8 8. Specialty Stores 3.0 Russell 3000 Growth Index
9. Microchip Technology Inc. 1.8 9. Internet Retail 2.6 (Style-specific Index) 30.97
10. Yahoo! Inc. 1.8 10. Data Processing & Lipper Multi-Cap Growth Fund Index
Outsourced Services 2.4 (Peer Group Index) 35.38
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 94
TOTAL NET ASSETS $124.5 Million
===================================================================================================================================
</Table>
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
<Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
first quarter of fiscal 2003 to the RESULTS OF A $10,000 INVESTMENT
first quarter of 2004, and that its 9/10/01-12/31/03
first quarter 2004 earnings exceeded Index data from 8/31/01
those of the fourth quarter of 2003. The [LINE CHART]
company's chief executive officer said
in December that his company's customers AIM V.I. DENT
appeared to be increasing their LIPPER DEMOGRAPHIC
information technology spending plans. MULTI-CAP TRENDS FUND-
S&P 500 GROWTH FUND RUSSELL 3000 SERIES I
o Lamar Advertising, one of the nation's INDEX INDEX GROWTH INDEX SHARES
leading outdoor advertising companies,
was the fund's top detractor for the
year. We anticipated that the improving 12/29/1999 10000
economy would cause companies to 6/30/2000 9957 10740 10404 10410
increase their advertising spending. 12/31/2000 9090 8795 7758 8211
When Lamar did not meet analysts' 6/30/2001 8481 7496 6731 6441
expectations, its stock underperformed 12/31/2001 8010 6582 6236 5591
and we therefore sold our holdings. 6/30/2002 6957 5257 4955 4470
12/31/2002 6241 4619 4488 3790
IN CLOSING 6/30/2003 6974 5341 5093 4551
12/31/2003 8030 6253 5877 5210
We were pleased to be able to provide
shareholders with positive returns that
exceeded those of the fund's benchmark Past performance cannot guarantee comparable future results. Source: Lipper, Inc.
indexes during the year ended December
31, 2003, by investing in the stocks of
companies that we believe are likely to investor's shares, when redeemed, may be U.S. companies based on market
benefit from changing demographic, worth more or less than their original capitalization. The Growth subset
economic, and lifestyle trends. cost. measures the performance of Russell 3000
companies with higher price/book ratios
---------- AIM Variable Insurance Funds are and higher forecasted growth values.
offered through insurance company
AVERAGE ANNUAL TOTAL RETURNS separate accounts to fund variable The unmanaged Standard & Poor's
- --------------------------------------- annuity contracts and variable life Composite Index of 500 Stocks (the S&P
As of 12/31/03 insurance policies, and through certain 500 Index) is an index of common stocks
pension or retirement plans. Performance frequently used as a general measure of
SERIES I SHARES figures given represent the fund and are U.S. stock market performance.
Inception (12/29/99) -15.02% not intended to reflect actual values.
1 Year 37.47 They do not reflect sales charges, Bloomberg, Inc., is a well-known
expenses and fees at the separate independent financial research and
SERIES II SHARES* account level. Sales charges, expenses reporting firm.
Inception -15.20% and fees, which are determined by the
1 Year 37.30 product issuers, will vary and will A direct investment cannot be made in
lower the total return. an index. Unless otherwise indicated,
*Series II shares were first offered index results include reinvested
11/7/01. Returns prior to that date are PRINCIPAL RISKS OF INVESTING IN THE FUND dividends, and they do not reflect sales
hypothetical results based on the charges. Performance of an index of
performance of Series I shares Harry S. Dent's stock market scenario funds reflects fund expenses;
(inception date 12/29/99), adjusted to for the coming decade, based on performance of a market index does not.
reflect Series II 12b-1 fees. The Series historical data, represents his opinion.
I and Series II shares invest in the Unforeseen events such as rising Industry classifications used in this
same portfolio of securities and will inflation, declining productivity, report are generally according to the
have substantially similar performance, irregular spending and savings patterns, Global Industry Classification Standard,
except to the extent that expenses borne and other social, political and economic which was developed by and is the
by each class differ. uncertainty could affect corporate exclusive property and a service mark of
earnings and the stock market, Morgan Stanley Capital International
Current performance may be lower or negatively altering Mr. Dent's view. Inc. and Standard & Poor's.
higher than the performance data quoted.
Past performance cannot guarantee Investing in small and mid-size A description of the policies and
comparable future results. Due to companies may involve risks not procedures that the Fund uses to
significant market volatility, results associated with investing in more determine how to vote proxies relating
of an investment made today may differ established companies. Also, small to portfolio securities is available
substantially from the historical companies may have business risk, without charge, upon request, by calling
performance shown. Please see your significant stock price fluctuations and 800-959-4246, or on the AIM Web site,
financial advisor for more current illiquidity. AIMinvestments.com.
performance. Fund performance figures
are historical, and they reflect fund The fund may invest up to 25% of its
expenses, the reinvestment of total assets in foreign securities.
distributions and changes in net asset International investing presents certain
value. The fund's investment return and risks not associated with investing
principal value will fluctuate, so an solely in the United States. These ==========================================
include risks relating to fluctuations PORTFOLIO MANAGEMENT TEAM AS OF
in the value of the U.S. dollar relative 12/31/03 KIRK L. ANDERSON GABE BIRDSALL
to the values of other currencies, the LANNY H. SACHNOWITZ, LEAD MANAGER
custody arrangements made for the fund's ASSISTED BY THE LARGE CAP GROWTH TEAM
foreign holdings, differences in ==========================================
accounting, political risks and the
lesser degree of public information VIDDT-AR-1
required to be provided by non-U.S.
companies.
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Lipper Multi-Cap Growth
Fund Index represents an average of the
performance of the 30 largest
multi-capitalization growth funds
tracked by Lipper, Inc., an independent
mutual fund performance monitor.
The unmanaged Russell 3000 Growth
Index is a subset of the Russell
3000--Registered Trademark-- Index, an
index of common stocks that measures
performance of the largest 3,000
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.41%
APPAREL RETAIL-2.08%
AnnTaylor Stores Corp.(a) 26,400 $ 1,029,600
- -----------------------------------------------------------------------
Gap, Inc. (The) 67,200 1,559,712
=======================================================================
2,589,312
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.75%
Coach, Inc.(a) 24,800 936,200
=======================================================================
APPLICATION SOFTWARE-1.41%
Mercury Interactive Corp.(a) 15,900 773,376
- -----------------------------------------------------------------------
PeopleSoft, Inc.(a) 43,100 982,680
=======================================================================
1,756,056
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.32%
Franklin Resources, Inc. 20,200 1,051,612
- -----------------------------------------------------------------------
Investors Financial Services Corp. 21,600 829,656
- -----------------------------------------------------------------------
T. Rowe Price Group Inc. 21,200 1,005,092
=======================================================================
2,886,360
=======================================================================
BIOTECHNOLOGY-3.89%
Amgen Inc.(a) 21,600 1,334,880
- -----------------------------------------------------------------------
Genentech, Inc.(a) 17,100 1,600,047
- -----------------------------------------------------------------------
Invitrogen Corp.(a) 18,300 1,281,000
- -----------------------------------------------------------------------
QLT Inc. (Canada)(a) 33,400 629,590
=======================================================================
4,845,517
=======================================================================
CASINOS & GAMING-0.87%
International Game Technology 30,200 1,078,140
=======================================================================
COMMUNICATIONS EQUIPMENT-8.45%
Cisco Systems, Inc.(a) 154,400 3,750,376
- -----------------------------------------------------------------------
Comverse Technology, Inc.(a) 47,400 833,766
- -----------------------------------------------------------------------
Corning Inc.(a) 82,800 863,604
- -----------------------------------------------------------------------
Juniper Networks, Inc.(a) 66,200 1,236,616
- -----------------------------------------------------------------------
Motorola, Inc. 74,400 1,046,808
- -----------------------------------------------------------------------
Nortel Networks Corp. (Canada)(a) 219,900 930,177
- -----------------------------------------------------------------------
QLogic Corp.(a) 18,700 964,920
- -----------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 13,400 895,522
=======================================================================
10,521,789
=======================================================================
COMPUTER & ELECTRONICS RETAIL-0.66%
Best Buy Co., Inc. 15,700 820,168
=======================================================================
COMPUTER HARDWARE-1.69%
Dell Inc.(a) 61,900 2,102,124
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-1.98%
Electronics for Imaging, Inc.(a) 29,100 $ 757,182
- -----------------------------------------------------------------------
EMC Corp.(a) 132,300 1,709,316
=======================================================================
2,466,498
=======================================================================
CONSUMER FINANCE-1.95%
American Express Co. 25,300 1,220,219
- -----------------------------------------------------------------------
MBNA Corp. 48,500 1,205,225
=======================================================================
2,425,444
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.39%
Affiliated Computer Services, Inc.-Class A(a) 17,100 931,266
- -----------------------------------------------------------------------
Alliance Data Systems Corp.(a) 26,900 744,592
- -----------------------------------------------------------------------
Paychex, Inc. 35,000 1,302,000
=======================================================================
2,977,858
=======================================================================
DEPARTMENT STORES-1.24%
Nordstrom, Inc. 27,500 943,250
- -----------------------------------------------------------------------
Saks Inc.(a) 39,800 598,592
=======================================================================
1,541,842
=======================================================================
DIVERSIFIED BANKS-1.15%
Wachovia Corp. 30,700 1,430,313
=======================================================================
DIVERSIFIED CAPITAL MARKETS-1.21%
J.P. Morgan Chase & Co. 41,000 1,505,930
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.52%
H&R Block, Inc. 11,600 642,292
=======================================================================
DRUG RETAIL-0.89%
CVS Corp. 30,800 1,112,496
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.30%
Agilent Technologies, Inc.(a) 55,500 1,622,820
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.78%
Molex Inc.-Class A 33,300 977,688
=======================================================================
HEALTH CARE DISTRIBUTORS-0.66%
Omnicare, Inc. 20,500 827,995
=======================================================================
HEALTH CARE EQUIPMENT-4.69%
Boston Scientific Corp.(a) 61,500 2,260,740
- -----------------------------------------------------------------------
Guidant Corp. 27,000 1,625,400
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 12,100 836,110
- -----------------------------------------------------------------------
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Zimmer Holdings, Inc.(a) 15,800 $ 1,112,320
=======================================================================
5,834,570
=======================================================================
HEALTH CARE SERVICES-1.65%
Caremark Rx, Inc.(a) 44,100 1,117,053
- -----------------------------------------------------------------------
DaVita, Inc.(a) 24,100 939,900
=======================================================================
2,056,953
=======================================================================
HEALTH CARE SUPPLIES-1.03%
Alcon, Inc. (Switzerland) 11,100 671,994
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 14,800 612,276
=======================================================================
1,284,270
=======================================================================
HOME ENTERTAINMENT SOFTWARE-1.06%
Electronic Arts Inc.(a) 27,600 1,318,728
=======================================================================
HOME IMPROVEMENT RETAIL-0.87%
Home Depot, Inc. (The) 30,400 1,078,896
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.85%
Royal Caribbean Cruises Ltd. (Liberia) 26,100 908,019
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 38,800 1,395,636
=======================================================================
2,303,655
=======================================================================
HOUSEHOLD PRODUCTS-1.26%
Procter & Gamble Co. (The) 15,700 1,568,116
=======================================================================
INTERNET RETAIL-2.63%
Amazon.com, Inc.(a) 40,900 2,152,976
- -----------------------------------------------------------------------
eBay Inc.(a) 17,400 1,123,866
=======================================================================
3,276,842
=======================================================================
INTERNET SOFTWARE & SERVICES-1.76%
Yahoo! Inc.(a) 48,400 2,186,228
=======================================================================
INVESTMENT BANKING & BROKERAGE-3.81%
Ameritrade Holding Corp.(a) 47,400 666,918
- -----------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 25,000 2,468,250
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 27,500 1,612,875
=======================================================================
4,748,043
=======================================================================
IT CONSULTING & OTHER SERVICES-0.94%
Accenture Ltd.-Class A (Bermuda)(a) 44,400 1,168,608
=======================================================================
MANAGED HEALTH CARE-1.52%
Coventry Health Care, Inc.(a) 14,200 915,758
- -----------------------------------------------------------------------
UnitedHealth Group Inc. 16,900 983,242
=======================================================================
1,899,000
=======================================================================
MOTORCYCLE MANUFACTURERS-0.44%
Harley-Davidson, Inc. 11,600 551,348
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.64%
Viacom Inc.-Class B 22,900 $ 1,016,302
- -----------------------------------------------------------------------
Walt Disney Co. (The) 44,000 1,026,520
=======================================================================
2,042,822
=======================================================================
MULTI-LINE INSURANCE-1.36%
American International Group, Inc. 15,000 994,200
- -----------------------------------------------------------------------
HCC Insurance Holdings, Inc. 22,000 699,600
=======================================================================
1,693,800
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.80%
Citigroup Inc. 46,200 2,242,548
=======================================================================
PERSONAL PRODUCTS-1.01%
Gillette Co. (The) 34,300 1,259,839
=======================================================================
PHARMACEUTICALS-4.85%
Lilly (Eli) & Co. 16,600 1,167,478
- -----------------------------------------------------------------------
Pfizer Inc. 46,500 1,642,845
- -----------------------------------------------------------------------
Pharmaceutical Resources, Inc.(a) 12,900 840,435
- -----------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 15,300 986,850
- -----------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 24,800 1,406,408
=======================================================================
6,044,016
=======================================================================
PUBLISHING-1.36%
Getty Images, Inc.(a) 33,700 1,689,381
=======================================================================
RESTAURANTS-0.66%
Wendy's International, Inc. 20,800 816,192
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.37%
Novellus Systems, Inc.(a) 70,300 2,956,115
=======================================================================
SEMICONDUCTORS-7.28%
Analog Devices, Inc. 68,400 3,122,460
- -----------------------------------------------------------------------
Microchip Technology Inc. 66,200 2,208,432
- -----------------------------------------------------------------------
PMC-Sierra, Inc.(a) 42,400 854,360
- -----------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 91,600 937,984
- -----------------------------------------------------------------------
Texas Instruments Inc. 65,900 1,936,142
=======================================================================
9,059,378
=======================================================================
SOFT DRINKS-0.66%
Coca-Cola Enterprises Inc. 37,400 817,938
=======================================================================
SPECIALTY STORES-3.04%
Advance Auto Parts, Inc.(a) 8,900 724,460
- -----------------------------------------------------------------------
Staples, Inc.(a) 35,500 969,150
- -----------------------------------------------------------------------
Tiffany & Co. 26,900 1,215,880
- -----------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 25,200 876,204
=======================================================================
3,785,694
=======================================================================
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SYSTEMS SOFTWARE-7.05%
Computer Associates International, Inc. 44,500 $ 1,216,630
- -----------------------------------------------------------------------
Microsoft Corp. 92,500 2,547,450
- -----------------------------------------------------------------------
Oracle Corp.(a) 73,300 967,560
- -----------------------------------------------------------------------
Symantec Corp.(a) 38,500 1,334,025
- -----------------------------------------------------------------------
VERITAS Software Corp.(a) 73,100 2,716,396
=======================================================================
8,782,061
=======================================================================
TECHNOLOGY DISTRIBUTORS-0.71%
CDW Corp. 15,400 889,504
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.92%
Doral Financial Corp. (Puerto Rico) 34,550 1,115,274
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-(CONTINUED)
New York Community Bancorp, Inc. 33,400 $ 1,270,870
=======================================================================
2,386,144
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $98,365,467) 118,807,531
=======================================================================
MONEY MARKET FUNDS-6.84%
Liquid Assets Portfolio(b) 4,258,463 4,258,463
- -----------------------------------------------------------------------
STIC Prime Portfolio(b) 4,258,463 4,258,463
=======================================================================
Total Money Market Funds (Cost
$8,516,926) 8,516,926
=======================================================================
TOTAL INVESTMENTS-102.25% (Cost $106,882,393) 127,324,457
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.25%) (2,803,804)
=======================================================================
NET ASSETS-100.00% $124,520,653
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $98,365,467) $118,807,531
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $8,516,926) 8,516,926
- -------------------------------------------------------------
Receivables for:
Investments sold 1,200,546
- -------------------------------------------------------------
Fund shares sold 302,196
- -------------------------------------------------------------
Dividends 76,033
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 19,983
=============================================================
Total assets 128,923,215
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 4,275,112
- -------------------------------------------------------------
Fund shares reacquired 2,999
- -------------------------------------------------------------
Deferred compensation and retirement plans 20,269
- -------------------------------------------------------------
Accrued administrative services fees 67,054
- -------------------------------------------------------------
Accrued distribution fees -- Series II 18,982
- -------------------------------------------------------------
Accrued transfer agent fees 292
- -------------------------------------------------------------
Accrued operating expenses 17,854
=============================================================
Total liabilities 4,402,562
=============================================================
Net assets applicable to shares outstanding $124,520,653
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $142,628,183
- -------------------------------------------------------------
Undistributed net investment income (loss) (19,450)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (38,530,144)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 20,442,064
=============================================================
$124,520,653
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 65,162,313
_____________________________________________________________
=============================================================
Series II $ 59,358,340
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 12,511,344
_____________________________________________________________
=============================================================
Series II 11,447,467
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 5.21
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 5.19
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$4,800) $ 461,138
- ------------------------------------------------------------
Dividends from affiliated money market funds 42,002
============================================================
Total investment income 503,140
============================================================
EXPENSES:
Advisory fees 616,306
- ------------------------------------------------------------
Administrative services fees 219,678
- ------------------------------------------------------------
Custodian fees 56,754
- ------------------------------------------------------------
Distribution fees -- Series II 76,139
- ------------------------------------------------------------
Transfer agent fees 10,934
- ------------------------------------------------------------
Trustees' fees 9,283
- ------------------------------------------------------------
Other 28,298
============================================================
Total expenses 1,017,392
============================================================
Less: Fees waived and expense offset
arrangements (31,038)
============================================================
Net expenses 986,354
============================================================
Net investment income (loss) (483,214)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,833,467
- ------------------------------------------------------------
Foreign currencies 1,068
- ------------------------------------------------------------
Option contracts written (51,519)
============================================================
1,783,016
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 20,808,580
- ------------------------------------------------------------
Option contracts written (3,561)
============================================================
20,805,019
============================================================
Net gain from investment securities, foreign
currencies and option contracts 22,588,035
============================================================
Net increase in net assets resulting from
operations $22,104,821
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (483,214) $ (287,078)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts 1,783,016 (14,395,560)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and option contracts 20,805,019 (1,671,862)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 22,104,821 (16,354,500)
==========================================================================================
Share transactions-net:
Series I 25,556,644 521,251
- ------------------------------------------------------------------------------------------
Series II 38,614,358 11,299,776
==========================================================================================
Net increase in net assets resulting from share
transactions 64,171,002 11,821,027
==========================================================================================
Net increase (decrease) in net assets 86,275,823 (4,533,473)
==========================================================================================
NET ASSETS:
Beginning of year 38,244,830 42,778,303
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(19,450) and $(16,242) for 2003 and 2002,
respectively) $124,520,653 $ 38,244,830
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Dent Demographic Trends 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
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. 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.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, 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.
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.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
J. 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.
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"). H.S. Dent Advisors, Inc. ("H.S. Dent") is the Fund's
sub-advisor. Under the terms of the investment advisory agreement, the Fund pays
an advisory fee to AIM at the annual rate of 0.85% of the first $2 billion of
the Fund's average daily net assets, plus 0.80% of the Fund's average daily net
assets in excess of $2 billion. Under the terms of a sub-advisory agreement
between AIM and H.S. Dent, AIM pays H.S. Dent at the annual rate of 0.13% of the
first $1 billion of the Fund's average daily net assets, plus 0.10% of the next
$1 billion of the Fund's average daily net assets, plus 0.07% of the Fund's
average daily net assets in excess of $2 billion. AIM has contractually agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
the expenses (excluding Rule 12b-1 plan fees, if any, interest, taxes, fund
merger and reorganization expenses, extraordinary items, including other items
designated as such by the Board of Trustees and increases in expenses due to
expense offset arrangements, if any) of each Series to 1.30%. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from affiliated money market funds on investments
by the Fund in such affiliated money market funds. For the year ended December
31, 2003, AIM waived fees of $561.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $219,678 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $12,802 for
such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $45,684 after AIM Distributors
waived Plan fees of $30,455.
Certain officers and trustees of the Trust are 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $1,086,161 $28,201,030 $(25,028,728) $ -- $4,258,463 $21,095 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 1,086,161 28,201,030 (25,028,728) -- 4,258,463 20,907 --
====================================================================================================================================
$2,172,322 $56,402,060 $(50,057,456) $ -- $8,516,926 $42,002 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$1 and reductions in custodian fees of $21 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $22.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,704
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
loan outstanding shall bear interest at the bid rate quoted by SSB at the time
of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------
Beginning of year 41 $ 5,713
- -----------------------------------------------------------
Written 1,525 220,789
- -----------------------------------------------------------
Closed (1,516) (220,902)
- -----------------------------------------------------------
Expired (50) (5,600)
===========================================================
End of year -- $ --
___________________________________________________________
===========================================================
</Table>
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, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 19,120,661
- -------------------------------------------------------------
Temporary book/tax differences (19,450)
- -------------------------------------------------------------
Capital loss carryforward (37,208,741)
- -------------------------------------------------------------
Shares of beneficial interest 142,628,183
=============================================================
Total net assets $124,520,653
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales.
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 trustee deferral of compensation and
trustee retirement plan expenses.
The Fund utilized $520,518 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 for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2008 $ 2,600,365
- -----------------------------------------------------------
December 31, 2009 21,006,614
- -----------------------------------------------------------
December 31, 2010 13,601,762
===========================================================
Total capital loss carryforward $37,208,741
___________________________________________________________
===========================================================
</Table>
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, 2003 was $156,261,267 and $96,951,416, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $19,332,050
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (211,389)
============================================================
Net unrealized appreciation of investment
securities $19,120,661
____________________________________________________________
============================================================
Cost of investments for tax purposes is $108,203,796.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2003, undistributed net
investment income was increased by $480,006, undistributed net realized gain
(loss) decreased by $1,068 and shares of beneficial interest decreased by
$478,938. This reclassification had no effect on the net assets of the Fund.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2003 2002
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Series I 7,197,545 $33,332,639 2,894,499 $ 13,398,396
- ---------------------------------------------------------------------------------------------------------------------
Series II 9,405,244 43,085,074 3,565,338 16,584,380
=====================================================================================================================
Reacquired:
Series I (1,735,831) (7,775,995) (2,862,278) (12,877,145)
- ---------------------------------------------------------------------------------------------------------------------
Series II (996,565) (4,470,716) (1,162,675) (5,284,604)
=====================================================================================================================
13,870,393 $64,171,002 2,434,884 $ 11,821,027
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------------
DECEMBER 29, 1999
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------------- DECEMBER 31,
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.79 $ 5.59 $ 8.21 $ 10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.03)(a) (0.05)(a) (0.07)(a) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.45 (1.77) (2.57) (1.72) 0.00
=================================================================================================================================
Total from investment operations 1.42 (1.80) (2.62) (1.79) 0.00
=================================================================================================================================
Net asset value, end of period $ 5.21 $ 3.79 $ 5.59 $ 8.21 $10.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 37.47% (32.20)% (31.91)% (17.90)% 0.00%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,162 $26,747 $39,226 $41,300 $1,000
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.30%(c) 1.30% 1.38% 1.40% 1.40%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.30%(c) 1.43% 1.44% 1.63% 12.58%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.61)%(c) (0.67)% (0.79)% (0.69)% 2.96%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 139% 208% 144% 92% --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $42,050,897.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------
NOVEMBER 7, 2001
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2003 2002 2001
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 3.78 $ 5.58 $ 5.33
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.04)(a) (0.01)(a)
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.44 (1.76) 0.26
==========================================================================================================
Total from investment operations 1.41 (1.80) 0.25
==========================================================================================================
Net asset value, end of period $ 5.19 $ 3.78 $ 5.58
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 37.30% (32.26)% 4.69%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $59,358 $11,498 $3,552
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.45%(c) 1.45% 1.45%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers 1.55%(c) 1.68% 1.61%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of net investment income (loss) to average net assets (0.76)%(c) (0.82)% (0.85)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 139% 208% 144%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $30,455,674.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Dent Demographic Trends Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2003, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the years or periods in the four
year period then ended and for the period December 29, 1999 (commencement of
operations) through December 31, 1999. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Dent Demographic Trends Fund as of December 31, 2003, 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 years or periods in the four year period then ended and for the period
December 29, 1999 (commencement of operations) through December 31, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and Fund Management
Company (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. and
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
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance investment company);
Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Group, Administaff, Discovery
Trustee Inc. (government affairs company) and Texana Timber Global Education Fund
LP (sustainable forestry company) (non-profit)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations None
Trustee Hines Interests Limited Partnership (real estate
development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General Counsel,
Liberty Financial Companies, Inc.; and Senior Vice
President and General Counsel, Liberty Funds Group,
LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and President, N/A
Vice President Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker H.S. Dent Advisors,
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street Inc.
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400 6515 Gwin Road
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103 Oakland, CA 94611
COUNSEL TO THE FUND
Foley & Lardner COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & AIM Investment Services, State Street Bank and
Washington, D.C. 20007 Frankel LLP Inc. Trust Company
919 Third Avenue P.O. Box 4739 225 Franklin Street
New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110
</Table>
AIM V.I. DENT DEMOGRAPHIC TRENDS FUND
AIM V.I. DIVERSIFIED INCOME FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. DIVERSIFIED INCOME FUND'S investment
objective is to achieve a high level of current income.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. DIVERSIFIED INCOME FUND
FUND BEATS BROAD-MARKET INDEX securities are perceived as having lower
AS CORPORATE BONDS OUTPERFORM risk, they typically offer lower yields
than corporate bonds. Government
AIM V.I. Diversified Income Fund finished Index, posted a 12.51% return for the securities underperformed corporate bonds
the fiscal year ended December 31, 2003, year, while their high yield in 2003, making the fund's underweighting
with total returns of 9.24% for Series I counterparts, as measured by the Lehman in government and mortgage-backed issues
shares and 9.02% for Series II shares. Global High Yield Index, returned 32.42% an advantage.
These results were more than double the for the same period.
4.10% return of the U.S. investment-grade The majority of the fund's assets
bond market as measured by the Lehman The nation's gross domestic product remained in U.S. investment-grade
U.S. Aggregate Bond Index, and modestly (GDP), generally considered the broadest corporate bonds, which typically offer
below the 9.75% return of the fund's peer measure of economic activity, expanded at higher yields because they are seen as
group as represented by the Lipper BBB an annualized rate of 1.4% in the first having more risk and economic
Rated Fund Index. quarter of 2003, 3.1% in the second sensitivity, and these higher returns
quarter, 8.2% in the third quarter, and boosted fund performance in comparison to
MARKET CONDITIONS 4.0% in the fourth quarter. the index. In 2003, we overweighted
BBB-rated corporate bonds, the
In the U.S. fixed-rate securities market, For the first half of the year, the lowest-rated and therefore generally the
high yield issues outperformed their Federal Reserve (the Fed) kept the highest-paying segment of the
investment-grade counterparts, on average, short-term federal funds rate at 1.25%. investment-grade bond market, in the
for the year ended December 31, 2003. The On June 25, 2003, it reduced that rate to portfolio. BBB-rated bonds benefited the
Lehman High Yield Index, which represents 1.00%, its lowest level since 1958, where most from the improved economic outlook
the performance of U.S. corporate high it remained for the rest of the year. At reflected in the rising GDP, further
yield debt securities, returned 28.97% the time it reduced the rate, the Fed contributing to fund performance.
for the year, compared to the Lehman U.S. said it favored a more expansive monetary
Aggregate's 4.10%. policy because the economy had not yet Additionally, while the Lehman U.S.
exhibited sustainable growth. By October, Aggregate includes only investment-grade
Among the segments of the the Fed reported that economic expansion bonds, the fund also maintains a small
investment-grade Lehman U.S. Aggregate had increased and consumer spending was position in high yield bonds. As
Bond Index, U.S. corporate instruments generally stronger, although the job mentioned, this category was the
averaged the highest results, followed by market remained weak. best-performing sector of the bond market
fixed-rate mortgage-backed securities, during 2003, further increasing the
U.S. agency investments and U.S. YOUR FUND fund's results.
Treasuries.
Several factors contributed to the fund's Underweightings in automobiles and
On the whole, returns were stronger outperformance of the Lehman U.S. airlines during the fiscal year limited
outside the United States, with high Aggregate Bond Index. First, the index fund performance, in our opinion.
yield instruments generally leading contains much higher percentages of U.S. Holdings that contributed positively to
investment-grade ones there as well. Treasury and agency issues and fund performance included U.S. cable TV
Foreign investment-grade bonds, as mortgage-backed instruments than the operator Comcast, mobile phone service
reflected by the Lehman Global Aggregate fund's portfolio. Because these provider AT&T Wireless and
government telecommunications company Sprint.
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 FIXED-INCOME ISSUERS* as of TOP 10 INDUSTRIES* as of 12/31/03 PORTFOLIO COMPOSITION BY CREDIT RATING As
12/31/03 of 12/31/03
- ------------------------------------------------------------------------------------------------------------------------------------
1. Federal National Mortgage 1. Broadcasting & Cable TV 10.0% [PIE CHART]
Association (FNMA) 4.1% 2. Diversified Banks 9.7 TOTAL NUMBER OF HOLDINGS* 255
2. Sprint Capital Corp. 2.4 3. Integrated Telecommunication TOTAL NET ASSETS $72.6 million
3. Capital One Financial Corp. 2.2 Services 8.2 AVERAGE CREDIT QUALITY
4. U.S. Treasury Bonds 2.1 4. Other Diversified Financial RATING A
5. General Motors Acceptance Corp. 2.0 Services 7.4 AVERAGE EFFECTIVE DURATION 4.5 years
6. United Mexican States (Mexico) 1.9 5. U.S. Government Agency AVERAGE MATURITY 6.85 years
7. U.S. Treasury Notes 1.9 Securities 7.0
8. Citicorp Lease-Series 1999-1 1.9 6. Electric Utilities 5.9
9. Bundesobligation (Germany) 1.8 7. Consumer Finance 5.7
10. Bundesrepublik Deutschland 8. Sovereign Debt 5.7
(Germany) 1.7 9. U.S. Treasury Securities 4.0
10. Wireless Telecommunications
Services 3.1
====================================================================================================================================
</Table>
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
<Table>
AIM V.I. DIVERSIFIED INCOME FUND
IN CLOSING RESULTS OF A $10,000 INVESTMENT
5/5/93-12/31/03
We continued to pursue high current Index data as of 4/30/93
income for our shareholders by investing
in a broad range of fixed-income sectors, [LINE CHART]
including U.S. and non-U.S.
investment-grade and noninvestment-grade LIPPER AIM V.I.
bonds. Most of the fund's LEHMAN BBB-RATED DIVERSIFIED
noninvestment-grade bonds carry a credit U.S. AGGREGATE BOND FUND INCOME FUND-
rating of BB, the highest credit tier in BOND INDEX INDEX SERIES I SHARES
the high yield market. For the earlier
part of the year, we kept the fund's 5/5/1993 10000 10000 10000
duration (a measure of sensitivity to 12/31/1993 10466 10638 10605
interest rate changes) approximately 12/31/1994 10161 10155 10068
index neutral. However, in view of the 12/31/1995 12038 12203 11984
rising GDP, we decided during the year 12/31/1996 12475 12721 13205
that it would be prudent to lower the 12/31/1997 13680 14029 14446
fund's duration to be prepared for any 12/31/1998 14868 14870 14963
possible increase in interest rates. By 12/31/1999 14746 14703 14677
year end, we had decreased the fund's 12/31/2000 16460 15857 14777
duration to 4.5 years. 12/31/2001 17850 17039 15308
12/31/2002 19681 18265 15657
---------- 12/31/2003 20489 20045 17105
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------
As of 12/31/03 Source: Lipper, Inc.
Past performance cannot guarantee comparable future results.
SERIES I SHARES
In evaluating this chart, please note that the chart uses a logarithmic scale
Inception (5/5/93) 5.17% along the vertical axis (the value scale). This means that each scale increment
10 Years 4.90 always represents the same percent change in price; in a linear chart each scale
5 Years 2.71 increment always represents the same absolute change in price. In this example,
1 Year 9.24 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
SERIES II SHARES** large. The benefit of using a logarithmic scale is that it better illustrates
10 Years 4.64% performance during the fund's early years before reinvested distributions and
5 Years 2.46 compounding create the potential for the original investment to grow to very large
1 Year 9.02 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
**Series II shares were first offered during the fund's early years. AIM uses a logarithmic scale in financial reports
3/14/02. Returns prior to that date are of funds that have more than five years of performance history.
hypothetical results based on the
performance of Series I shares from Organizations based on assessment of the securities), is compiled by Lehman
12/31/93, adjusted to reflect Series II credit quality of the individual Brothers, a global investment bank. The
12b-1 fees. The Series I and Series II securities. unmanaged Lehman Global Aggregate Index
shares invest in the same portfolio of provides a broad-based measure of the
securities and will have substantially Effective duration is a measure of a global investment-grade fixed income
similar performance, except to the extent bond fund's price sensitivity to changes markets. Its major components are the
that expenses borne by each class differ. in interest rates. It also takes into U.S. Aggregate, the Pan-European
account mortgage prepayments, puts, Aggregate, and the Asian-Pacific
Current performance may be lower or adjustable coupons and potential call Aggregate Indices, all of which are
higher than the performance data quoted. dates. compiled by Lehman Brothers, a global
Past performance cannot guarantee investment bank. The unmanaged Lehman
comparable future results. Due to U.S. Treasury securities such as Global High Yield Index covers the
significant market volatility, results of bills, notes and bonds offer a high degree universe of fixed rate, non-investment
an investment made today may differ of safety, and they guarantee the payment grade debt representing companies in the
substantially from the historical of principal and any applicable interest U.S., Developed Markets, and Emerging
performance shown. Please see your if held to maturity. Fund shares are no Markets. The unmanaged Lipper BBB-Rated
financial advisor for more current insured, and their value and yield will Fund Index represents an average of the
performance. Fund performance figures are vary with market conditions. 30 largest BBB-rated bond funds tracked
historical, and they reflect fund by Lipper, Inc., an independent mutual
expenses, the reinvestment of International investing presents fund performance monitor.
distributions and changes in net asset certain risks not associated with
value. The fund's investment return and investing solely in the United States. A direct investment cannot be made in
principal value will fluctuate, so an These include risks relating to an index. Unless otherwise indicated, index
investor's shares, when redeemed, may be fluctuations in the value of the U.S. results include reinvested dividends, and
worth more or less than their original dollar relative to the values of other they do not reflect sales charges.
cost. currencies, the custody arrangements made Performance of an index of funds reflects
for the fund's foreign holdings, fund expenses; performance of a market
AIM Variable Insurance Funds are differences in accounting, political risks index does not.
offered through insurance company separate and the lesser degree of public
accounts to fund variable annuity information required to be provided Industry classifications used in this
contracts and variable life insurance by non-U.S.companies. report are generally according to the
policies, and through certain pension or Global Industry Classification Standard,
retirement plans. Performance figures The fund invests in higher-yielding, which was developed by and is the
given represent the fund and are not lower-rated corporate bonds, commonly exclusive property and a service mark of
intended to reflect actual variable known as junk bonds, which have a greater Morgan Stanley Capital International Inc.
product values. They do not reflect sales risk of price fluctuation and loss of and Standard & Poor's.
charges, expenses and fees at the principal and income than do U.S.
separate account level. Sales charges, government securities such as U.S. A description of the policies and
expenses and fees, which are determined Treasury bills, notes and bonds, for procedures that the Fund uses to
by the product issuers, will vary and which principal and any applicable determine how to vote proxies relating to
will lower the total return. interest are guaranteed by the government portfolio securities is available without
if held to maturity. charge, upon request, by calling
PRINCIPAL RISKS OF INVESTING IN THE FUND 800-959-4246, or on the AIM Web site,
The fund may participate in the AIMinvestments.com.
The average credit quality of the fund's initial public offering (IPO) market in
holdings as of the close of the reporting some market cycles. Because of the fund's =========================================
period represents the weighted average small asset base, any investment the fund PORTFOLIO MANAGEMENT TEAM
quality rating of the securities in the may make in IPOs may significantly affect AS OF 12/31/03
portfolio as assigned by Nationally the fund's total return. As the fund's ROBERT G. ALLEY, CO-MANAGER
Recognized Statistical Rating assets grow, the impact of IPO JAN H. FRIEDLI, CO-MANAGER
investments will decline, which may CAROLYN L. GIBBS, CO-MANAGER
reduce the effect of IPO investments on SCOT JOHNSON, CO-MANAGER
the fund's total return. ASSISTED BY THE INVESTMENT GRADE
AND HIGH-YIELD TAXABLE TEAMS
ABOUT INDEXES USED IN THIS REPORT =========================================
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
VIDIN-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
U.S. DOLLAR DENOMINATED NON-CONVERTIBLE BONDS
& NOTES-74.49%
AEROSPACE & DEFENSE-0.74%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 300,000 $ 343,674
- -----------------------------------------------------------------------
Raytheon Co., Notes, 6.75%, 08/15/07 175,000 193,608
=======================================================================
537,282
=======================================================================
ALTERNATIVE CARRIERS-0.36%
INTELSAT, Ltd. (Bermuda), Notes, 6.50%,
11/01/13 (Acquired 10/31/03; Cost
$249,235)(a)(b) 250,000 261,525
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.38%
Bank of New York Institutional Capital
Trust-Series A, Bonds, 7.78%, 12/01/26
(Acquired 06/12/03; Cost $298,178)(a)(b) 250,000 273,240
=======================================================================
AUTOMOBILE MANUFACTURERS-0.21%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 150,000 152,158
=======================================================================
BROADCASTING & CABLE TV-9.27%
Adelphia Communications Corp., Sr. Unsec.
Notes, 10.88%, 10/01/10(c) 350,000 314,125
- -----------------------------------------------------------------------
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 600,000 669,396
- -----------------------------------------------------------------------
Clear Channel Communications, Inc., Sr.
Unsec. Gtd. Notes, 8.00%, 11/01/08 700,000 818,328
- -----------------------------------------------------------------------
Comcast Corp.,
Sr. Sub. Deb., 10.63%, 07/15/12 150,000 194,625
- -----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 500,000 587,500
- -----------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 500,000 571,300
- -----------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec. Notes,
6.63%, 02/15/06 125,000 134,955
- -----------------------------------------------------------------------
CSC Holdings Inc., Sr. Unsec. Notes,
7.25%, 07/15/08 325,000 337,187
- -----------------------------------------------------------------------
7.88%, 12/15/07 300,000 317,250
- -----------------------------------------------------------------------
Knology, Inc., Sr. Unsec. PIK Notes, 12.00%,
11/30/09 (Acquired 01/06/98-11/14/03; Cost
$142,815)(a) 88,075 87,855
- -----------------------------------------------------------------------
Liberty Media Corp., Global Notes, 3.50%,
09/25/06 400,000 402,220
- -----------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 440,000 542,454
- -----------------------------------------------------------------------
TCI Communications, Inc., Medium Term Notes,
8.35%, 02/15/05 100,000 106,562
- -----------------------------------------------------------------------
Time Warner Cos. Inc., Sr. Unsec. Gtd. Deb,
6.88%, 06/15/18 325,000 354,490
- -----------------------------------------------------------------------
7.25%, 10/15/17 250,000 285,040
- -----------------------------------------------------------------------
7.57%, 02/01/24 225,000 253,642
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Time Warner Cos. Inc., Unsec.
Notes, 7.75%, 06/15/05 $ 225,000 $ 243,583
- -----------------------------------------------------------------------
Time Warner Inc.,
Unsec. Deb., 9.15%, 02/01/23 400,000 513,684
=======================================================================
6,734,196
=======================================================================
CASINOS & GAMING-0.42%
Caesars Entertainment, Inc., Sr. Unsec.
Global Notes, 7.00%, 04/15/13 160,000 171,600
- -----------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 125,000 135,625
=======================================================================
307,225
=======================================================================
COMMODITY CHEMICALS-0.15%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 100,000 110,500
=======================================================================
CONSUMER FINANCE-5.67%
Associates Corp. of North America, Sub. Deb.,
8.15%, 08/01/09 100,000 120,964
- -----------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Global Notes, 8.25%, 06/15/05 200,000 216,298
- -----------------------------------------------------------------------
Sr. Unsec. Notes,
7.25%, 05/01/06 1,100,000 1,185,503
- -----------------------------------------------------------------------
8.75%, 02/01/07 200,000 223,362
- -----------------------------------------------------------------------
Ford Motor Credit Co., Unsec. Global Notes,
6.70%, 07/16/04 150,000 153,856
- -----------------------------------------------------------------------
6.88%, 02/01/06 235,000 250,637
- -----------------------------------------------------------------------
7.50%, 03/15/05 125,000 132,054
- -----------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Notes, 4.50%, 07/15/06 260,000 267,267
- -----------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 300,000 311,304
- -----------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 800,000 857,024
- -----------------------------------------------------------------------
Hertz Corp. (The)-Class A, Floating Rate
Global Notes, 1.71%, 08/13/04(d) 400,000 396,000
=======================================================================
4,114,269
=======================================================================
DISTILLERS & VINTNERS-0.14%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12 90,000 100,125
=======================================================================
DIVERSIFIED BANKS-7.80%
Abbey National PLC (United Kingdom), Sub.
Yankee Notes, 7.35%,(e) 250,000 277,275
- -----------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $155,267)(a)(b) 140,000 149,895
- -----------------------------------------------------------------------
Bank of America Corp.-Series B, Putable Sub.
Medium Term Notes, 8.57%, 11/15/24 200,000 260,996
- -----------------------------------------------------------------------
Barclays Bank PLC (Diversified Banks), Bonds,
8.55%, 09/19/49 (Acquired 11/05/03; Cost
$676,852)(a)(b) 550,000 669,273
- -----------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Barnett Capital I, Gtd. Bonds, 8.06%,
12/01/26 $ 400,000 $ 459,724
- -----------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 470,000 522,461
- -----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$632,715)(a)(b) 500,000 601,245
- -----------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26,
(Acquired 06/18/03; Cost $417,043)(a)(b) 350,000 398,762
- -----------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 250,000 247,402
- -----------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Notes,
8.23%, 02/01/27 260,000 299,650
- -----------------------------------------------------------------------
Golden State Bancorp. Inc., Sub. Deb.,
10.00%, 10/01/06 200,000 237,772
- -----------------------------------------------------------------------
HSBC Capital Funding L.P. (Diversified
Banks), Gtd. Bonds, 4.61%, (Acquired
11/05/03; Cost $186,504)(a)(b)(e) 200,000 188,230
- -----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.25%,(e)(f) 180,000 152,621
- -----------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 325,000 413,124
- -----------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%,(e) 200,000 190,388
- -----------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 100,000 109,043
- -----------------------------------------------------------------------
Wachovia Corp., Unsec. Putable Sub. Deb.,
7.50%, 04/15/35 400,000 486,384
=======================================================================
5,664,245
=======================================================================
DIVERSIFIED CAPITAL MARKETS-1.45%
Chase Manhattan Corp., Sub. Debs., 7.88%,
07/15/06 125,000 140,595
- -----------------------------------------------------------------------
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%,(e) 740,000 911,192
=======================================================================
1,051,787
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.59%
International Lease Finance Corp., Global
Notes, 2.95%, 05/23/06 240,000 242,112
- -----------------------------------------------------------------------
United Rentals (North America), Inc.-Series
B, Sr. Unsec. Gtd. Notes, 10.75%, 04/15/08 165,000 186,450
=======================================================================
428,562
=======================================================================
ELECTRIC UTILITIES-4.66%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 100,000 109,574
- -----------------------------------------------------------------------
American Electric Power Co., Inc., Sr. Unsec.
Unsub. Notes, 5.25%, 06/01/15 240,000 235,709
- -----------------------------------------------------------------------
CenterPoint Energy, Inc., Notes, 5.88%,
06/01/08 (Acquired 05/21/03; Cost
$151,278)(a) 150,000 155,289
- -----------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04(g) 175,000 179,816
- -----------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(g) 300,000 330,249
- -----------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds,
6.00%, 02/15/14 (Acquired 10/03/03; Cost
$204,460)(a)(b) 200,000 209,152
- -----------------------------------------------------------------------
Dynegy Holdings Inc., Sr. Sec. Gtd. Second
Priority Notes, 10.13%, 07/15/13 (Acquired
08/01/03; Cost $143,865)(a) 145,000 167,837
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
ELECTRIC UTILITIES-(CONTINUED)
Hydro-Quebec (Canada), Gtd. Floating Rate
Euro Notes, 1.25%(e)(f) $ 330,000 $ 296,573
- -----------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 5.25%, 11/01/18 240,000 239,916
- -----------------------------------------------------------------------
Southern Power Co., Bonds, 4.88%, 07/15/15
(Acquired 07/01/03; Cost $274,280)(a) 275,000 262,460
- -----------------------------------------------------------------------
United Energy Distribution Holdings Party
Ltd. (Australia), Sr. Unsec. Unsub. Notes,
4.70%, 04/15/11 (Acquired 11/12/03; Cost
$259,737)(a)(b) 260,000 262,597
- -----------------------------------------------------------------------
Xcel Energy, Inc., Sr. Global Notes, 3.40%,
07/01/08 150,000 146,745
- -----------------------------------------------------------------------
Yorkshire Power Finance (Cayman
Islands)-Series B, Sr. Unsec. Gtd. Unsub.
Global Notes, 6.50%, 02/25/08(a) 750,000 789,337
=======================================================================
3,385,254
=======================================================================
ENVIRONMENTAL SERVICES-0.76%
Waste Management, Inc., Sr. Unsec. Unsub.
Notes, 7.38%, 08/01/10 475,000 548,444
=======================================================================
FOOD RETAIL-0.32%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 75,000 80,004
- -----------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 150,000 149,988
=======================================================================
229,992
=======================================================================
GAS UTILITIES-1.90%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 400,000 430,032
- -----------------------------------------------------------------------
Kinder Morgan, Inc., Sr. Unsec. Notes, 6.80%,
03/01/08 375,000 414,446
- -----------------------------------------------------------------------
Michigan Consolidated Gas Co., First Mortgage
Bonds, 5.70%, 03/15/33 300,000 291,117
- -----------------------------------------------------------------------
Suburban Propane Partners L.P./Suburban
Energy Finance Corp., Sr. Notes, 6.88%,
12/15/13 (Acquired 12/18/03; Cost
$240,000)(a)(b) 240,000 242,400
=======================================================================
1,377,995
=======================================================================
HEALTH CARE FACILITIES-0.65%
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Global Notes, 10.38%, 02/15/09 240,000 273,600
- -----------------------------------------------------------------------
HCA Inc., Notes, 6.25%, 02/15/13 190,000 195,670
=======================================================================
469,270
=======================================================================
HEALTH CARE SUPPLIES-0.12%
Fisher Scientific International Inc., Sr.
Unsec. Sub. Global Notes, 8.13%, 05/01/12 80,000 86,200
=======================================================================
HOMEBUILDING-1.47%
D.R. Horton, Inc., Sr. Unsec. Gtd. Notes,
8.00%, 02/01/09 175,000 198,625
- -----------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10 300,000 342,750
- -----------------------------------------------------------------------
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
HOMEBUILDING-(CONTINUED)
M.D.C. Holdings, Inc., Sr. Unsec. Gtd. Notes,
5.50%, 05/15/13 $ 350,000 $ 357,584
- -----------------------------------------------------------------------
WCI Communities, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 9.13%, 05/01/12 155,000 171,662
=======================================================================
1,070,621
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.35%
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 60,000 67,500
- -----------------------------------------------------------------------
Intrawest Corp. (Canada), Sr. Notes, 7.50%,
10/15/13 (Acquired 12/17/03; Cost
$186,750)(a) 180,000 187,200
=======================================================================
254,700
=======================================================================
HOUSEWARES & SPECIALTIES-0.78%
American Greetings Corp., Unsec. Putable
Notes, 6.10%, 08/01/28 550,000 563,062
=======================================================================
HYPERMARKETS & SUPER CENTERS-0.21%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 140,000 151,773
=======================================================================
INDUSTRIAL CONGLOMERATES-0.12%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$84,920)(a)(b) 75,000 83,635
=======================================================================
INTEGRATED OIL & GAS-2.58%
Husky Oil Ltd. (Canada), Sr. Unsec. Yankee
Notes, 7.13%, 11/15/06 300,000 326,172
- -----------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%,
08/15/28 540,000 626,378
- -----------------------------------------------------------------------
Occidental Petroleum Corp., Sr. Unsec. Notes,
6.50%, 04/01/05 100,000 105,543
- -----------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 230,000 248,172
- -----------------------------------------------------------------------
TGT Pipeline LLC, Global Bonds, 5.20%,
06/01/18 600,000 564,198
=======================================================================
1,870,463
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-8.17%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 200,000 220,274
- -----------------------------------------------------------------------
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 175,000 206,941
- -----------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 7.75%, 06/15/05 140,000 152,180
- -----------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 9.75%, 03/01/31 335,000 442,826
- -----------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 100,000 109,077
- -----------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 250,000 280,897
- -----------------------------------------------------------------------
Qwest Capital Funding, Inc., Unsec. Gtd.
Global Notes,
7.00%, 08/03/09 135,000 134,325
- -----------------------------------------------------------------------
7.25%, 02/15/11 200,000 197,000
- -----------------------------------------------------------------------
Qwest Corp., Notes, 5.65%, 11/01/04 515,000 516,931
- -----------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 450,000 479,380
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
7.13%, 01/30/06 $ 450,000 $ 482,593
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes, 6.13%,
11/15/08 350,000 371,955
- -----------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 150,000 159,939
- -----------------------------------------------------------------------
8.75%, 03/15/32 200,000 237,028
- -----------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 320,000 382,301
- -----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 650,000 722,312
- -----------------------------------------------------------------------
8.00%, 06/01/11 300,000 351,750
- -----------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Unsub. Global Notes, 7.75%, 12/01/30 170,000 198,900
- -----------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 275,000 289,426
=======================================================================
5,936,035
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.71%
Goldman Sachs Group, L.P., Unsec. Notes,
7.25%, 10/01/05 (Acquired 03/18/03; Cost
$195,228)(a)(b) 175,000 189,779
- -----------------------------------------------------------------------
Lehman Brothers Inc., Sr. Sub. Deb., 11.63%,
05/15/05 100,000 111,601
- -----------------------------------------------------------------------
Morgan Stanley, Unsec. Notes, 6.30%, 01/15/06 200,000 214,376
=======================================================================
515,756
=======================================================================
LIFE & HEALTH INSURANCE-1.43%
Americo Life Inc., Notes, 7.88%, 05/01/13(a) 325,000 322,341
- -----------------------------------------------------------------------
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$224,876)(a)(b) 225,000 239,074
- -----------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 70,000 76,124
- -----------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 150,000 168,245
- -----------------------------------------------------------------------
Torchmark Corp., Notes, 7.88%, 05/15/23 200,000 234,384
=======================================================================
1,040,168
=======================================================================
METAL & GLASS CONTAINERS-0.40%
Anchor Glass Container Corp., Sr. Sec. Notes,
11.00%, 02/15/13 (Acquired 07/29/03; Cost
$139,750)(a) 130,000 150,800
- -----------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb., 7.50%,
05/15/10 135,000 138,375
=======================================================================
289,175
=======================================================================
MOVIES & ENTERTAINMENT-0.22%
Time Warner Inc., Sr. Unsec. Gtd. Unsub.
Global Notes, 6.13%, 04/15/06 150,000 161,505
=======================================================================
MULTI-LINE INSURANCE-0.27%
MassMutual Global Funding II, Notes, 3.80%,
04/15/09 (Acquired 10/07/03; Cost
$199,734)(a) 200,000 199,548
=======================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER-1.19%
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19 $ 173,059 $ 187,769
- -----------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 230,000 183,425
- -----------------------------------------------------------------------
Duke Energy Corp., First Mortgage Bonds,
3.75%, 03/05/08 150,000 150,644
- -----------------------------------------------------------------------
Westar Energy, Inc., Sec. First Mortgage
Global Bonds, 7.88%, 05/01/07 300,000 345,750
=======================================================================
867,588
=======================================================================
MUNICIPALITIES-0.13%
Illinois (State of); Unlimited Tax Pension
Series 2003 GO, 5.10%, 06/01/33 100,000 91,947
=======================================================================
OIL & GAS DRILLING-1.28%
R&B Falcon Corp.-Series B, Sr. Unsec. Notes,
6.75%, 04/15/05 200,000 211,238
- -----------------------------------------------------------------------
Transocean Inc. (Cayman Islands),
Sr. Unsec. Unsub. Global Deb., 8.00%,
04/15/27 300,000 360,381
- -----------------------------------------------------------------------
Unsec. Global Notes, 6.95%, 04/15/08 320,000 359,290
=======================================================================
930,909
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.63%
Newfield Exploration Co., Sr. Unsec. Unsub.
Notes,
7.63%, 03/01/11 490,000 548,800
- -----------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes, 7.38%, 12/15/14 600,000 633,126
=======================================================================
1,181,926
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.91%
Petroleos Mexicanos (Mexico),
Gtd. Unsub. Global Notes, 6.50%, 02/01/05 150,000 157,125
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Yankee Bonds, 9.38%,
12/02/08 300,000 355,875
- -----------------------------------------------------------------------
Plains All American Pipeline L.P./PAA Finance
Corp., Sr. Notes, 5.63%, 12/15/13 (Acquired
12/03/03; Cost $149,601)(a)(b) 150,000 151,134
=======================================================================
664,134
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.25%
CIT Group Inc.,
Sr. Global Notes, 7.13%, 10/15/04 75,000 78,276
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 75,000 81,432
- -----------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Global Bonds,
6.00%, 10/31/33 400,000 400,600
- -----------------------------------------------------------------------
General Electric Capital Corp.,
Series A, Medium Term Global Notes,
5.88%, 02/15/12 400,000 430,852
- -----------------------------------------------------------------------
6.00%, 06/15/12 250,000 270,638
- -----------------------------------------------------------------------
Sr. Medium Term Global Notes, 4.25%,
12/01/10 250,000 248,385
- -----------------------------------------------------------------------
Household Finance Corp.,
Global Notes, 6.38%, 11/27/12 300,000 328,161
- -----------------------------------------------------------------------
Medium Term Notes, 3.38%, 02/21/06 35,000 35,695
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 125,000 135,348
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(e) $ 250,000 $ 302,273
- -----------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09 300,000 348,186
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07 180,000 199,037
- -----------------------------------------------------------------------
Regional Diversified Funding, Sr. Notes,
9.25%, 03/15/30 (Acquired 01/10/03; Cost
$218,035)(a)(b) 194,320 225,485
=======================================================================
3,084,368
=======================================================================
PUBLISHING-0.96%
News America Holdings, Inc.,
Sr. Unsec. Gtd. Deb., 7.70%, 10/30/25 300,000 349,656
- -----------------------------------------------------------------------
Unsec. Gtd. Deb., 7.75%, 01/20/24 300,000 350,919
=======================================================================
700,575
=======================================================================
REAL ESTATE-0.89%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 150,000 168,414
- -----------------------------------------------------------------------
Host Marriott L.P.-Series I, Unsec. Gtd.
Global Notes, 9.50%, 01/15/07 325,000 364,813
- -----------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
8.75%, 08/15/08 100,000 115,500
=======================================================================
648,727
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.28%
Dominion Resources, Inc. Sr. Unsec. Putable
Notes, 5.25%, 08/01/15 200,000 199,760
=======================================================================
REGIONAL BANKS-1.28%
Branch Banking & Trust Co., Unsec. Sub.
Global Notes, 5.20%, 12/23/15 175,000 174,552
- -----------------------------------------------------------------------
Greater Bay Bancorp.-Series B, Sr. Notes,
5.25%, 03/31/08 350,000 353,217
- -----------------------------------------------------------------------
GulfTerra Energy Partners, L.P.-Series B, Sr.
Unsec. Gtd. Sub. Global Notes, 8.50%,
06/01/10 136,000 155,720
- -----------------------------------------------------------------------
Union Planters Corp., Notes, 4.38%, 12/01/10 250,000 248,618
=======================================================================
932,107
=======================================================================
REINSURANCE-0.58%
GE Global Insurance Holding Corp.,
Unsec. Notes,
7.00%, 02/15/26 125,000 135,478
- -----------------------------------------------------------------------
7.50%, 06/15/10 250,000 287,335
=======================================================================
422,813
=======================================================================
RESTAURANTS-0.33%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 220,000 241,303
=======================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
SOVEREIGN DEBT-1.93%
United Mexican States (Mexico),
Global Notes,
4.63%, 10/08/08 $ 150,000 $ 152,438
- -----------------------------------------------------------------------
6.63%, 03/03/15 350,000 363,563
- -----------------------------------------------------------------------
7.50%, 04/08/33 850,000 887,188
=======================================================================
1,403,189
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.21%
Bank United-Series A, Medium Term Notes,
8.00%, 03/15/09 300,000 351,843
- -----------------------------------------------------------------------
Countrywide Home Loans, Inc.-
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 50,000 53,481
- -----------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 125,000 128,131
- -----------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 100,000 108,847
- -----------------------------------------------------------------------
Washington Mutual, Inc., Jr. Unsec. Sub.
Notes, 8.25%, 04/01/10 200,000 236,726
=======================================================================
879,028
=======================================================================
TOBACCO-0.88%
Altria Group, Inc.,
Notes,
7.00%, 11/04/13 225,000 240,217
- -----------------------------------------------------------------------
7.13%, 10/01/04 275,000 283,594
- -----------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 110,000 115,452
=======================================================================
639,263
=======================================================================
TRUCKING-1.32%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 850,000 959,370
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.14%
Nextel Communications, Inc., Sr. Unsec.
Notes, 7.38%, 08/01/15 180,000 194,400
- -----------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 970,000 1,151,487
- -----------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 775,000 934,170
=======================================================================
2,280,057
=======================================================================
Total U.S. Dollar Denominated
Non-Convertible Bonds & Notes (Cost
$53,246,942) 54,095,774
=======================================================================
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-7.57%(h)
CANADA-0.68%
Rogers Cablesystems Ltd. (Broadcasting &
Cable TV), Sr. Sec. Second Priority Deb.,
9.65%, 01/15/14 CAD 600,000 491,773
=======================================================================
GERMANY-5.37%
Bundesobligation (Sovereign Debt), Euro
Bonds, 4.50%, 08/17/07 EUR 1,000,000 1,311,558
- -----------------------------------------------------------------------
Bundesrepublik Deutschland (Sovereign Debt)-
Series 2002, Euro Bonds, 5.00%, 07/04/12EUR 900,000 1,198,280
- -----------------------------------------------------------------------
Kreditanstalt fuer Wiederaufbau (Diversified
Banks), Sr. Unsec. Gtd. Unsub. Global
Notes, 3.50%, 11/15/05 EUR 600,000 766,898
- -----------------------------------------------------------------------
Landesbank Baden-Wuerttemberg (Diversified
Banks), Sec. Euro Bonds, 3.25%, 05/08/08EUR 500,000 622,313
=======================================================================
3,899,049
=======================================================================
UNITED KINGDOM-1.52%
COLT Telecom Group PLC (Alternative
Carriers), Euro Conv. Bonds, REGS 2.00%,
12/16/06 EUR 125,000 173,747
- -----------------------------------------------------------------------
Sutton Bridge Financing Ltd. (Electric
Utilities), Gtd. Euro Bonds, REGS 8.63%,
06/30/22 GBP 411,451 734,048
- -----------------------------------------------------------------------
United Kingdom (Treasury of) (Sovereign
Debt), Bonds, 7.25%, 12/07/07 GBP 100,000 195,600
=======================================================================
1,103,395
=======================================================================
Total Non-U.S. Dollar Denominated Bonds &
Notes (Cost $4,773,200) 5,494,217
=======================================================================
<Caption>
SHARES
WARRANTS & OTHER EQUITY INTERESTS-0.03%
BROADCASTING & CABLE TV-0.01%
Knology, Inc.-Series D, Conv. Pfd. (Acquired
01/06/98; Cost $0)(a)(b)(j) 8,626 7,789
- -----------------------------------------------------------------------
Knology Inc.-Wts., expiring 10/22/07
(Acquired 03/12/98; Cost $0)(a)(b)(i)(k) 1,000 0
=======================================================================
7,789
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(b)(k) 275 0
=======================================================================
RAILROADS-0.02%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(b)(k) 200 11,818
=======================================================================
Total Warrants & Other Equity Interests
(Cost $0) 19,607
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-7.01%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.52%
Pass Through Ctfs.,
8.50%, 03/01/10 $ 4,836 5,210
- -----------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32 181,903 190,870
- -----------------------------------------------------------------------
6.00%, 05/01/17 to 12/01/31 224,788 234,132
- -----------------------------------------------------------------------
5.50%, 09/01/17 241,374 250,434
- -----------------------------------------------------------------------
7.50%, 09/01/29 95,888 103,037
- -----------------------------------------------------------------------
Unsec. Global Notes,
2.75%, 03/15/08 325,000 318,341
=======================================================================
1,102,024
=======================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-4.80%
Pass Through Ctfs.,
7.00%, 02/01/16 to 09/01/32 $ 224,332 $ 238,033
- -----------------------------------------------------------------------
6.50%, 05/01/16 to 11/01/31 177,004 185,925
- -----------------------------------------------------------------------
6.00%, 05/01/17 to 03/01/33 637,380 660,692
- -----------------------------------------------------------------------
5.50%, 06/01/18 to 12/01/33 834,533 849,878
- -----------------------------------------------------------------------
5.00%, 11/01/18 178,599 182,443
- -----------------------------------------------------------------------
7.50%, 04/01/29 to 10/01/29 186,472 199,487
- -----------------------------------------------------------------------
8.00%, 04/01/32 79,933 86,224
- -----------------------------------------------------------------------
Unsec. Global Notes,
1.88%, 09/15/05 200,000 200,234
- -----------------------------------------------------------------------
4.38%, 09/15/12 375,000 370,612
- -----------------------------------------------------------------------
Unsec. Sub. Notes,
5.25%, 08/01/12 500,000 513,190
=======================================================================
3,486,718
=======================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.69%
Pass Through Ctfs.,
7.50%, 06/15/23 to 01/15/32 66,579 71,794
- -----------------------------------------------------------------------
8.50%, 11/15/24 34,370 37,886
- -----------------------------------------------------------------------
7.00%, 07/15/31 to 08/15/31 30,541 32,569
- -----------------------------------------------------------------------
6.50%, 11/15/31 to 09/15/32 183,536 193,649
- -----------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32 161,512 168,075
=======================================================================
503,973
=======================================================================
Total U.S. Government Agency Securities
(Cost $5,025,952) 5,092,715
=======================================================================
ASSET-BACKED SECURITIES-3.74%
ELECTRIC UTILITIES-0.24%
Public Service Co. of Colorado, Global
Collateral Trust, 4.88%, 03/01/13 175,000 174,377
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.31%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 05/20/03; Cost
$232,334)(a)(b) 224,381 223,910
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.19%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-09/23/03; Cost $658,547)(a)(b) 617,514 661,876
- -----------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Citicorp Lease-Series 1999-1, Class A2, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-08/20/02; Cost $609,801)(a)(b) $ 600,000 $ 705,396
- -----------------------------------------------------------------------
First Industrial Realty Trust, Inc., PATS,
7.38%, 05/15/04 (Acquired 02/06/03; Cost
$157,275)(a)(b) 150,000 152,785
- -----------------------------------------------------------------------
National Rural Utilities Cooperative Finance
Corp., Sr. Sec. Global Collateral Trust,
6.00%, 05/15/06 250,000 267,915
- -----------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series 2000-1, Pass Through Ctfs., 8.25%,
02/15/05 (Acquired 06/19/03-09/22/03; Cost
$540,888)(b) 500,000 530,165
=======================================================================
2,318,137
=======================================================================
Total Asset-Backed Securities (Cost
$2,593,220) 2,716,424
=======================================================================
U.S. TREASURY SECURITIES-3.95%
U.S. TREASURY NOTES-1.89%
2.13%, 10/31/04 300,000 302,415
- -----------------------------------------------------------------------
1.50%, 02/28/05 550,000 551,375
- -----------------------------------------------------------------------
3.13%, 10/15/08 200,000 199,750
- -----------------------------------------------------------------------
5.00%, 08/15/11 300,000 321,327
=======================================================================
1,374,867
=======================================================================
U.S. TREASURY BONDS-2.06%
7.25%, 05/15/16 1,200,000 1,497,936
=======================================================================
Total U.S. Treasury Securities (Cost
$2,848,177) 2,872,803
=======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-2.18%
Liquid Assets Portfolio(l) 791,463 791,463
- -----------------------------------------------------------------------
STIC Prime Portfolio(I) 791,463 791,463
=======================================================================
Total Money Market Funds (Cost
$1,582,926) 1,582,926
=======================================================================
TOTAL INVESTMENTS-98.97% (Cost $70,070,417) 71,874,466
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.03% 746,820
=======================================================================
NET ASSETS-100.00% $72,621,286
_______________________________________________________________________
=======================================================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
Investment Abbreviations:
<Table>
CAD - Canadian Dollars
Deb. - Debentures
EUR - Euro
GBP - British Pound Sterling
GO - General Obligation Bonds
Gtd. - Guaranteed
PATS - Pass through Asset Trust Securities
Pfd. - Preferred
PIK - Payment in Kind
REGS - Regulation S
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) 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 12/31/03 was $8,231,667, which represented 11.34% of the
Fund's net assets. Unless otherwise indicated, these securities are not
considered to be illiquid.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 12/31/03 was $6,442,165 which
represented 8.87% of the Fund's net assets.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Interest rates are redetermined quarterly. Rates shown is rate in effect
on 12/31/03.
(e) Perpetual bond with no specified maturity date.
(f) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 12/31/03.
(g) Principal and interest are secured by bond insurance provided by one of
the following companies: Ambac Assurance Corp., Financial Guaranty
Insurance Co., Financial Security Assurance Inc., or MBIA Insurance
Corp.
(h) Foreign denominated security. Par value is denominated in currency
indicated.
(i) Security fair valued in accordance with the procedures established by
the Board of Trustees.
(j) Non-income producing security.
(k) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(l) The money market fund and the Fund are affiliated by having the same
investment advisor See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $68,487,491) $ 70,291,540
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,582,926) 1,582,926
- -------------------------------------------------------------
Foreign currencies, at value (cost $13,340) 16,194
- -------------------------------------------------------------
Receivables for:
Fund shares sold 4,576
- -------------------------------------------------------------
Dividends and interest 1,026,531
- -------------------------------------------------------------
Investment for deferred compensation &
retirement plans 45,644
- -------------------------------------------------------------
Other assets 926
=============================================================
Total assets 72,968,337
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 68,258
- -------------------------------------------------------------
Foreign currency contracts outstanding 168,041
- -------------------------------------------------------------
Deferred compensation & retirement plans 49,074
- -------------------------------------------------------------
Variation margin 1,906
- -------------------------------------------------------------
Accrued administrative services fees 29,437
- -------------------------------------------------------------
Accrued distribution fees -- Series II 426
- -------------------------------------------------------------
Accrued transfer agent fees 528
- -------------------------------------------------------------
Accrued operating expenses 29,381
=============================================================
Total liabilities 347,051
=============================================================
Net assets applicable to shares outstanding $ 72,621,286
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 88,024,826
- -------------------------------------------------------------
Undistributed net investment income 3,690,139
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
foreign currency contracts and futures
contracts (20,717,889)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, foreign
currency contracts and futures contracts 1,624,210
=============================================================
$ 72,621,286
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 71,859,514
_____________________________________________________________
=============================================================
Series II $ 761,772
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,145,958
_____________________________________________________________
=============================================================
Series II 86,803
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 8.82
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 8.78
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Interest $4,032,376
- ------------------------------------------------------------
Dividends 33,698
- ------------------------------------------------------------
Dividends from affiliated money market funds 16,992
============================================================
Total investment income 4,083,066
============================================================
EXPENSES:
Advisory fees 433,226
- ------------------------------------------------------------
Administrative services fees 158,727
- ------------------------------------------------------------
Custodian fees 28,598
- ------------------------------------------------------------
Distribution fees -- Series II 1,182
- ------------------------------------------------------------
Transfer agent fees 6,184
- ------------------------------------------------------------
Trustees' fees 9,583
- ------------------------------------------------------------
Other 48,274
============================================================
Total expenses 685,774
============================================================
Less: Fees waived and expense offset
arrangements (648)
============================================================
Net expenses 685,126
============================================================
Net investment income 3,397,940
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS AND FUTURES
CONTRACTS:
Net realized gain (loss) from:
Investment securities 2,879,877
- ------------------------------------------------------------
Foreign currencies (4,414)
- ------------------------------------------------------------
Foreign currency contracts 117,293
- ------------------------------------------------------------
Futures contracts 47,353
============================================================
3,040,109
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 51,755
- ------------------------------------------------------------
Foreign currencies (1,243)
- ------------------------------------------------------------
Foreign currency contracts (168,041)
- ------------------------------------------------------------
Futures contracts (22,508)
============================================================
(140,037)
============================================================
Net gain from investment securities, foreign
currencies, foreign currency contracts and
futures contracts 2,900,072
============================================================
Net increase in net assets resulting from
operations $6,298,012
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,397,940 $ 4,574,009
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts and
futures contracts 3,040,109 (7,703,601)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (140,037) 4,663,791
==========================================================================================
Net increase in net assets resulting from operations 6,298,012 1,534,199
==========================================================================================
Distributions to shareholders from net investment income:
Series I (4,397,603) (5,535,504)
- ------------------------------------------------------------------------------------------
Series II (44,727) (9,184)
==========================================================================================
Decrease in net assets resulting from distributions (4,442,330) (5,544,688)
==========================================================================================
Share transactions-net:
Series I (644,786) (5,226,934)
- ------------------------------------------------------------------------------------------
Series II 644,619 128,395
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (167) (5,098,539)
==========================================================================================
Net increase (decrease) in net assets 1,855,515 (9,109,028)
==========================================================================================
NET ASSETS:
Beginning of year 70,765,771 79,874,799
==========================================================================================
End of year (including undistributed net investment income
of $3,690,139 and $4,379,513 for 2003 and 2002,
respectively) $72,621,286 $70,765,771
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. DIVERSIFIED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Diversified Income 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
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. 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.
The Fund's investment objective is to achieve a high level of current
income. The Fund will seek to achieve its objective by investing primarily in a
diversified portfolio of foreign and U.S. government and corporate debt
securities, including lower rated high yield debt securities (commonly known as
"junk bonds"). These high yield bonds may involve special risks in addition to
the risks associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market in which high yield bonds are traded may be less liquid than the market
for higher grade bonds. Each company listed in the Schedule of Investments is
organized in the United States of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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. The
AIM V.I. DIVERSIFIED INCOME FUND
Fund allocates income and realized and unrealized capital gains and losses
to a class based on the relative net assets of each class.
C. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price. The mortgage-backed securities that are repurchased
will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories. During the period between the sale and repurchase, the Fund will
not be entitled to receive interest and principal payments on securities
sold. Proceeds of the sale may be invested in short-term instruments, and
the income from these investments, together with any additional fee income
received on the sale, could generate income for the Fund exceeding the
yield on the security sold. The difference between the selling price and
the future repurchase price is recorded as realized gain (loss). At the
time the Fund enters into the dollar roll, it will segregate liquid assets
having a dollar value equal to the repurchase price.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gains,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. 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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
F. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. 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 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. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. Risks also include to
varying degrees, the risk of loss in excess of the variation margin
disclosed in the Statement of Assets and Liabilities.
I. 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.
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 AIM at the annual rate of 0.60% of the first
$250 million of the Fund's average daily net assets, plus 0.55% of the Fund's
average daily net assets in excess of $250 million. AIM has voluntarily agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due
AIM V.I. DIVERSIFIED INCOME FUND
to expense offset arrangements, if any) of each Series to 1.30%. Voluntary
expense limitations may be modified or discontinued at any time without further
notice to investors. 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. For the year ended December 31, 2003, AIM waived fees of
$351.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $158,727 of which AIM
retained $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $8,434 such
services.
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 furnish
continuing personal shareholder services to their customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $1,182.
Certain officers and trustees of the Trust are 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 598,301 $24,027,315 $(23,834,153) $ -- $ 791,463 $ 8,586 $ --
STIC Prime Portfolio 598,301 24,027,315 (23,834,153) -- 791,463 8,406 --
==================================================================================================================================
$1,196,602 $48,054,630 $(47,668,306) $ -- $1,582,926 $16,992 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of custodian
credits resulting from periodic overnight cash balances at the custodian. For
the year ended December 31, 2003, the Fund received reductions in custodian fees
of $297 under an expense offset arrangement, which resulted in a reduction of
the Fund's total expenses of $297.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,705
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by
AIM V.I. DIVERSIFIED INCOME FUND
its prospectus for borrowings. The Fund and other funds advised by AIM which
were parties to the credit facility could borrow on a first come, first served
basis. The funds which were party to the credit facility were charged a
commitment fee of 0.09% on the unused balance of the committed line. The
commitment fee was allocated among the funds based on their respective average
net assets for the period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------
CONTRACT TO UNREALIZED
SETTLEMENT ---------------------- APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------
01/20/04 CAD 625,000 $ 477,829 $ 481,803 $ (3,974)
- -----------------------------------------------------------------------------
01/12/04 EUR 1,980,000 2,325,719 2,489,786 (164,067)
=============================================================================
2,605,000 $2,803,548 $2,971,589 $ (168,041)
_____________________________________________________________________________
=============================================================================
</Table>
NOTE 8--FUTURE CONTRACTS
On December 31, 2003, $100,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------
US Treasury 5 YR Note 14 Mar-04/Short $1,562,750 $ (0)
- -----------------------------------------------------------------------------
US Treasury 2 YR Note 5 Mar-04/Short 1,070,234 (22,508)
=============================================================================
$2,632,984 $(22,508)
_____________________________________________________________________________
=============================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------
Distributions paid from ordinary
income $4,442,330 $5,544,688
_______________________________________________________________
===============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 3,747,785
- -------------------------------------------------------------
Unrealized appreciation -- investments 1,806,496
- -------------------------------------------------------------
Temporary book/tax differences (50,675)
- -------------------------------------------------------------
Capital loss carryforward (20,779,819)
- -------------------------------------------------------------
Post-October capital loss deferral (127,327)
- -------------------------------------------------------------
Shares of beneficial interest 88,024,826
=============================================================
Total net assets $ 72,621,286
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales, the treatment of bond premium amortization and the tax
recognition of unrealized gains (losses) on certain future and forward
contracts. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $10,710.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund utilized $1,649,337 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 for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------
December 31, 2006 $ 775,275
- ----------------------------------------------
December 31, 2007 2,582,661
- ----------------------------------------------
December 31, 2008 4,437,761
- ----------------------------------------------
December 31, 2009 6,105,069
- ----------------------------------------------
December 31, 2010 6,879,053
==============================================
Total capital loss carryforward $20,779,819
______________________________________________
==============================================
</Table>
AIM V.I. DIVERSIFIED INCOME FUND
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, 2003 was $107,270,874 and $107,544,017, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $2,337,404
- ------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (541,618)
========================================================================
Net unrealized appreciation of investment securities $1,795,786
________________________________________________________________________
========================================================================
Cost of investments for tax purposes is $70,078,680.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, bond premium amortization, and paydowns on mortgage backed
securities on December 31, 2003, undistributed net investment income was
increased by $355,016 and undistributed net realized gains decreased by
$355,016. This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 2003 and 2002
were as follows:
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,328,205 $ 11,971,880 1,352,069 $ 12,168,430
- ----------------------------------------------------------------------------------------------------------------------
Series II* 69,869 624,220 13,618 121,346
======================================================================================================================
Issued as reinvestment of dividends:
Series I 501,437 4,397,603 655,089 5,535,504
- ----------------------------------------------------------------------------------------------------------------------
Series II* 5,123 44,727 1,090 9,184
======================================================================================================================
Reacquired:
Series I (1,893,686) (17,014,269) (2,547,691) (22,930,868)
- ----------------------------------------------------------------------------------------------------------------------
Series II* (2,658) (24,328) (239) (2,135)
======================================================================================================================
8,290 $ (167) (526,064) $ (5,098,539)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Series II shares commenced sales on March 14, 2002.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2003 2002 2001 2000 1999
Net asset value, beginning of period $ 8.60 $ 9.13 $ 9.49 $ 10.06 $ 10.94
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.42(a) 0.55(a) 0.67(a)(b) 0.76(a) 0.64
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.37 (0.35) (0.35) (0.69) (0.85)
=================================================================================================================================
Total from investment operations 0.79 0.20 0.32 0.07 (0.21)
=================================================================================================================================
Less dividends from net investment income (0.57) (0.73) (0.68) (0.64) (0.67)
=================================================================================================================================
Net asset value, end of period $ 8.82 $ 8.60 $ 9.13 $ 9.49 $ 10.06
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 9.24% 2.30% 3.48% 0.80% (1.92)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 71,860 $70,642 $ 79,875 $83,722 $ 99,509
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.95%(d) 0.94% 0.93% 0.90% 0.83%
=================================================================================================================================
Ratio of net investment income to average net assets 4.71%(d) 6.15% 6.87%(b) 7.84% 7.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 153% 86% 79% 74% 83%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investments Companies and
began amortizing premiums on debt securities. Had the fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.70 and the ratio of net investment income to average net
assets would have been 7.19%. In accordance with the AICPA Audit Guide
for Investment Companies, per share and ratios prior to January 1, 2001
have not been restated to reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges at the separate account level which if included would reduce
total returns for all periods shown.
(d) Ratios are based on average daily net assets of $71,731,633.
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------
MARCH 14, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
Net asset value, beginning of period $ 8.58 $ 8.97
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40(a) 0.42(a)
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.37 (0.08)
===============================================================================================
Total from investment operations 0.77 0.34
===============================================================================================
Less dividends from net investment income (0.57) (0.73)
===============================================================================================
Net asset value, end of period $ 8.78 $ 8.58
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 9.02% 3.90%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 762 $ 124
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets 1.20%(c) 1.19%(d)
===============================================================================================
Ratio of net investment income to average net assets 4.46%(c) 5.90%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 153% 86%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $472,645.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. DIVERSIFIED INCOME FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. DIVERSIFIED INCOME FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Diversified Income Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2003, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the years or periods in the five
year period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Diversified Income Fund as of December 31, 2003, 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 years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. DIVERSIFIED INCOME FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and
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
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Administaff, Discovery
Trustee Group, Inc. (government affairs company) and Global Education Fund
Texana Timber LP (sustainable forestry company) (non-profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. DIVERSIFIED INCOME FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel, Liberty
Funds Group, LLC
- ----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND
Foley & Lardner COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
3000 K N.W., Suite 500 Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
Washington, D.C. 20007 Frankel LLP P.O. Box 4739 Trust Company
919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2002, 0.05% is eligible for the dividends received deduction for
corporations.
AIM V.I. DIVERSIFIED INCOME FUND
AIM V.I. GLOBAL UTILITIES FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. GLOBAL UTILITIES FUND'S investment
objective is to achieve a high total return.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GLOBAL UTILITIES FUND Small- and mid-cap stocks generally
EARNS DOUBLE-DIGIT RETURNS outperformed large-cap stocks for the
year. The performance of growth and value
AIM V.I. Global Utilities Fund finished 3.1% in the second quarter, 8.2% in the stocks was similar, although mid-cap
the fiscal year ended December 31, 2003, third quarter, and 4.0% in the fourth growth stocks generally outperformed
with total returns of 19.03% for Series I quarter of 2003. As of the close of the their value counterparts.
shares and 18.94% for Series II shares. year, approximately 64% of the companies
Although positive, the utilities sector's in the S&P 500 Index had reported YOUR FUND
results underperformed the more third-quarter earnings that exceeded
economically sensitive segments of the analysts' expectations while The largest positive contributions to
market--those which are affected more approximately 20.5% had reported earnings fund performance for the fiscal year came
strongly by changes in the economic that met those estimates. The job market, from the electric utilities industry,
climate. Consequently, the S&P while improving, continued to be weak, where the fund had its largest sub-sector
500--Registered Trademark-- Index, which however, as the nation's unemployment exposure. Electric utilities enjoyed
is often used as a broad-based measure of rate stood at 5.7% at the close of the strong returns for the period because, in
U.S. stock market performance and which year. part, they benefited from the change in
has only about 3% in utility stocks, tax law that reduced taxes on corporate
returned 28.67% for the same period. For the first half of the year, the dividends.
Federal Reserve (the Fed) kept the
MARKET CONDITIONS short-term federal funds rate at 1.25%. Also contributing positively to fund
On June 25, 2003, it reduced that rate to results were gas utilities, which gained
Amid a backdrop of generally improving 1.00%, its lowest level since 1958. At from rising natural gas prices.
economic conditions, the S&P 500 Index the time, the Fed said it favored a more Diversified telecommunication services
declined at the beginning of 2003, expansive monetary policy because the also made positive contributions, but
dropping to its lowest level of the year economy had not yet exhibited sustainable some of the regional Bell operating
on March 11. The index then rallied, growth. By October, the Fed reported that companies (RBOCs), such as Verizon, were
posting a gain of 28.67% for the year, as economic expansion had increased and hampered by a ruling by the Federal
noted. consumer spending was generally stronger, Communications Commission that it would
although the job market remained weak. continue to make the RBOCs lease their
During this rally, the United States network infrastructure to competitors at
and its allies took military action All sectors of the S&P 500 Index wholesale rates.
against Iraq and toppled the regime of recorded gains for the fiscal year.
Saddam Hussein. The nation's gross Information technology, materials and Among specific holdings that
domestic product, generally considered consumer discretionary were the benefited fund performance during the
the broadest measure of economic top-performing sectors while period were:
activity, expanded at an annualized rate telecommunication services, consumer
of staples and health care were the o Endesa S.A., a Spanish utility which
weakest-performing sectors. continued to build capacity and benefited
from favorable supply/demand dynamics in
its markets.
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Southern Co. (The) 4.4% 1. Electric Utilities 54.8% Total returns 12/31/02-12/31/03,
2. FPL Group, Inc. 4.3 2. Integrated Telecommunication excluding product issuer charges
3. Exelon Corp. 3.4 Services 12.6
4. Dominion Resources, Inc. 3.2 3. Multi-Utilities & Unregulated Series I Shares 19.03%
5. Verizon Communications Inc. 3.1 Power 10.5 Series II Shares 18.94
6. Kelda Group PLC (United 4. Gas Utilities 9.2 S&P 500 Index 28.67
Kingdom) 3.1 5. Water Utilities 3.8 (Broad Market Index)
7. BellSouth Corp. 3.0 6. Wireless Telecommunication Lipper Utility Fund Index 21.57
8. Ameren Corp. 2.7 Services 2.3 (Peer Group Index)
9. Endesa, S.A. (Spain) 2.6 7. Electrical Components & Source: Lipper, Inc.
10. E.ON A.G. (Germany) 2.6 Equipment 0.3 TOTAL NUMBER OF HOLDINGS* 57
TOTAL NET ASSETS $21.9 million
====================================================================================================================================
</Table>
<Table>
<Caption>
=========================================
PORTFOLIO MANAGER
AS OF 12/31/03
JOHN S. SEGNER
=========================================
</Table>
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
<Table>
AIM V.I. GLOBAL UTILITIES FUND
o Telefonica S.A., a Spanish RESULTS OF A $10,000 INVESTMENT
telecommunications company, which faces 5/2/94-D12/31/03
less intense competition than most U.S. Index data from 4/30/94
telecommunications companies.
[LINE CHART]
o E.ON A.G., a German utility whose value
rose through the year, and which raised AIM V.I. GLOBAL
its free cash flow projections for the S&P 500 LIPPER UTILITY UTILITIES FUND-
2004 to 2006 period. INDEX FUND INDEX SERIES I SHARES
Several holdings hindered performance
for the period. DTE Energy was hampered 5/2/1994 10000 10000 10000
by delays on its application to 12/31/1994 10397 9593 9708
regulators for a cost recovery rate 12/31/1995 14299 12194 12302
increase. Duke Energy experienced 12/31/1996 17580 13331 13788
weakness in its unregulated operations, 12/31/1997 23443 16759 16772
partly due to the rising cost of natural 12/31/1998 30148 19842 19535
gas. 12/31/1999 36489 22726 26092
12/31/2000 33167 24674 25497
IN CLOSING 12/31/2001 29228 19407 18376
12/31/2002 22771 15001 13687
During the fiscal year, the fund's 12/31/2003 29299 18238 16290
management team was changed, and some
adjustments were made to fund holdings as Source: Lipper, Inc.
well as to the fund's investment
strategy. We have made no sweeping
changes of a top-down nature; instead, we Past performance cannot guarantee comparable future results.
have focused more tightly on the
utilities industry, replacing individual In evaluating this chart, please note that the chart uses a logarithmic scale along
holdings on a stock-bystock basis. 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
We continued to pursue high total always represents the same absolute change in price. In this example, the scale
return for AIM V.I. Global Utilities Fund increment between $5,000 and $10,000 is the same as that between $10,000 and $20,000.
by investing primarily in securities of In a linear chart, the latter scale increment would be twice as large. The benefit of
domestic and foreign utility companies. using a logarithmic scale is that it better illustrates performance during the fund's
We also invested in non-utility early years before reinvested distributions and compounding create the potential for
securities, generally securities of the original investment to grow to very large numbers. Had the chart used a linear
companies that derive revenues from scale along its vertical axis, you would not be able to see as clearly the movements
utility-related activities. In selecting in the value of the fund and the indexes during the fund's early years. We use a
stocks, we focused on companies that we logarithmic scale in financial reports of funds that have more than five years of
judged to have sound fundamentals and performance history.
favorable prospects for achieving high
total return. Current performance may be lower or The fund may participate in the
higher than the performance data quoted. initial public offering (IPO) market in
---------- Past performance cannot guarantee some market cycles. Because of the fund's
comparable future results. Due to small asset base, any investment the fund
AVERAGE ANNUAL TOTAL RETURNS significant market volatility, results of may make in IPOs may significantly affect
- ---------------------------------------- an investment made today may differ the fund's total return. As the fund's
As of 12/31/03 substantially from the historical assets grow, the impact of IPO
performance shown. Please see your investments will decline, which may
SERIES I SHARES financial advisor for more current reduce the effect of IPO investments on
Inception (5/2/94) 5.18% performance. Fund performance figures are the fund's total return.
5 Years -3.57 historical, and they reflect fund
1 Year 19.03 expenses, the reinvestment of ABOUT INDEXES USED IN THIS REPORT
distributions and changes in net asset
SERIES II SHARES* value. The fund's investment return and The unmanaged Lipper Utility Fund Index
Inception 4.94% principal value will fluctuate, so an represents an average of the 30 largest
5 Years -3.76 investor's shares, when redeemed, may be utility funds tracked by Lipper, Inc., an
1 Year 18.94 worth more or less than their original independent mutual fund performance
cost. monitor. The unmanaged Standard & Poor's
*Series II shares were first offered Composite Index of 500 Stocks (the S&P
3/26/02. Returns prior to that date are AIM Variable Insurance Funds are 500) is an index of common stocks
hypothetical results based on the offered through insurance company frequently used as a general measure of
performance of Series I shares (inception separate accounts to fund variable U.S. stock market performance.
date 5/2/94), adjusted to reflect Series annuity contracts and variable life
II 12b-1 fees. The Series I and Series II insurance policies, and through certain A direct investment cannot be made in
shares invest in the same portfolio of pension or retirement plans. Performance an index. Unless otherwise indicated,
securities and will have substantially figures given represent the fund and are index results include reinvested
similar performance, except to the extent not intended to reflect actual variable dividends, and they do not reflect sales
that expenses borne by each class differ. product values. They do not reflect sales charges. Performance of an index of funds
charges, expenses and fees at the reflects fund expenses; performance of a
separate account level. Sales charges, market index does not.
expenses and fees, which are determined
by the product issuers, will vary and Industry classifications used in this
will lower the total return. report are generally according to the
Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND which was developed by and is the exclusive
property and a service mark of Morgan
International investing presents certain Stanley Capital International Inc. and
risks not associated with investing Standard & Poor's.
solely in the United States. These
include risks relating to fluctuations in A description of the policies and
the value of the U.S. dollar relative to procedures that the Fund uses to
the values of other currencies, the determine how to vote proxies relating to
custody arrangements made for the fund's portfolio securities is available without
foreign holdings, differences in charge, upon request, by calling
accounting, political risks and the 800-959-4246, or on the AIM Web site,
lesser degree of public information AIMinvestments.com.
required to be provided by non-U.S.
companies.
Investing in a single-sector or
single-region mutual fund may involve
greater risk and potential reward than
investing in a more diversified fund.
VIGLU-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
DOMESTIC COMMON STOCKS-68.76%
ELECTRIC UTILITIES-43.48%
Ameren Corp. 12,700 $ 584,200
- ----------------------------------------------------------------------
American Electric Power Co., Inc. 9,500 289,845
- ----------------------------------------------------------------------
CenterPoint Energy, Inc. 15,700 152,133
- ----------------------------------------------------------------------
Cinergy Corp. 8,400 326,004
- ----------------------------------------------------------------------
CMS Energy Corp.(a) 13,800 117,576
- ----------------------------------------------------------------------
Consolidated Edison, Inc. 9,700 417,197
- ----------------------------------------------------------------------
Dominion Resources, Inc. 10,900 695,747
- ----------------------------------------------------------------------
DTE Energy Co. 4,300 169,420
- ----------------------------------------------------------------------
Edison International 15,100 331,143
- ----------------------------------------------------------------------
Entergy Corp. 9,300 531,309
- ----------------------------------------------------------------------
Exelon Corp. 11,200 743,232
- ----------------------------------------------------------------------
FirstEnergy Corp. 13,600 478,720
- ----------------------------------------------------------------------
FPL Group, Inc. 14,400 942,048
- ----------------------------------------------------------------------
OGE Energy Corp. 15,900 384,621
- ----------------------------------------------------------------------
PG&E Corp.(a) 20,400 566,508
- ----------------------------------------------------------------------
Pinnacle West Capital Corp. 5,500 220,110
- ----------------------------------------------------------------------
PPL Corp. 11,200 490,000
- ----------------------------------------------------------------------
Progress Energy, Inc. 8,300 375,658
- ----------------------------------------------------------------------
Southern Co. (The) 31,400 949,850
- ----------------------------------------------------------------------
TXU Corp. 9,000 213,480
- ----------------------------------------------------------------------
Wisconsin Energy Corp. 12,600 421,470
- ----------------------------------------------------------------------
Xcel Energy, Inc. 6,100 103,578
======================================================================
9,503,849
======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.32%
General Cable Corp.(a) 8,400 68,460
======================================================================
GAS UTILITIES-7.50%
KeySpan Corp. 12,000 441,600
- ----------------------------------------------------------------------
NiSource Inc. 25,200 552,888
- ----------------------------------------------------------------------
Peoples Energy Corp. 6,600 277,464
- ----------------------------------------------------------------------
Sempra Energy 12,200 366,732
======================================================================
1,638,684
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-7.24%
BellSouth Corp. 23,100 653,730
- ----------------------------------------------------------------------
SBC Communications Inc. 9,700 252,879
- ----------------------------------------------------------------------
Verizon Communications Inc. 19,286 676,553
======================================================================
1,583,162
======================================================================
</Table>
<Table>
- ----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
MULTI-UTILITIES & UNREGULATED POWER-9.54%
Constellation Energy Group, Inc. 13,000 $ 509,080
- ----------------------------------------------------------------------
Duke Energy Corp. 25,000 511,250
- ----------------------------------------------------------------------
Energy East Corp. 12,300 275,520
- ----------------------------------------------------------------------
Equitable Resources, Inc. 3,400 145,928
- ----------------------------------------------------------------------
ONEOK, Inc. 10,300 227,424
- ----------------------------------------------------------------------
Public Service Enterprise Group Inc. 9,500 416,100
======================================================================
2,085,302
======================================================================
WATER UTILITIES-0.68%
Philadelphia Suburban Corp. 6,750 149,175
======================================================================
Total Domestic Common Stocks (Cost
$13,498,062) 15,028,632
======================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-23.26%
GERMANY-2.63%
E.ON A.G. (Electric Utilities)(a) 8,820 574,039
======================================================================
GREECE-1.60%
Public Power Corp. (Electric Utilities) 2,100 51,775
- ----------------------------------------------------------------------
Public Power Corp.-GDR (Electric Utilities)
(Acquired 12/10/01-12/27/02; Cost
$140,218)(a)(b)(c) 12,100 298,324
======================================================================
350,099
======================================================================
HONG KONG-0.47%
China Resources Power Holdings Co. Ltd.
(Electric Utilities)(a) 221,800 103,563
======================================================================
ITALY-3.56%
Enel S.p.A. (Electric Utilities) 16,800 113,905
- ----------------------------------------------------------------------
Snam Rete Gas S.p.A. (Gas Utilities) 37,100 156,805
- ----------------------------------------------------------------------
Telecom Italia S.p.A. RNC (Integrated
Telecommunication Services)(a) 249,522 506,906
======================================================================
777,616
======================================================================
SPAIN-7.66%
Endesa, S.A. (Electric Utilities) 30,100 577,408
- ----------------------------------------------------------------------
Endesa, S.A.-ADR (Electric Utilities) 6,000 114,600
- ----------------------------------------------------------------------
Iberdrola S.A. (Electric Utilities)(a) 12,700 250,333
- ----------------------------------------------------------------------
Red Electrica de Espana (Electric Utilities) 10,400 170,068
- ----------------------------------------------------------------------
Telefonica, S.A. (Integrated
Telecommunication Services) 38,305 560,860
======================================================================
1,673,269
======================================================================
UNITED KINGDOM-7.34%
Centrica PLC (Gas Utilities) 56,300 212,105
- ----------------------------------------------------------------------
Kelda Group PLC (Water Utilities) 80,674 675,564
- ----------------------------------------------------------------------
</Table>
AIM V.I. GLOBAL UTILITIES FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
National Grid Transco PLC (Multi-Utilities &
Unregulated Power) 30,413 $ 217,345
- ----------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services) 157,494 389,470
- ----------------------------------------------------------------------
Vodafone Group PLC-ADR (Wireless
Telecommunication Services) 4,400 110,176
======================================================================
1,604,660
======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $4,155,565) 5,083,246
======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. DOLLAR DENOMINATED BONDS & NOTES-1.50%
ELECTRIC UTILITIES-1.00%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 $ 100,000 109,574
- ----------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 100,000 108,963
======================================================================
218,537
======================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-0.50%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 $ 100,000 $ 110,137
======================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $326,475) 328,674
======================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-6.40%
Liquid Assets Portfolio(d) 699,776 699,776
- ----------------------------------------------------------------------
STIC Prime Portfolio(d) 699,776 699,776
======================================================================
Total Money Market Funds (Cost
$1,399,552) 1,399,552
======================================================================
TOTAL INVESTMENTS-99.92% (Cost $19,379,654) 21,840,104
======================================================================
OTHER ASSETS LESS LIABILITIES-0.08% 17,619
======================================================================
NET ASSETS-100.00% $21,857,723
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
Sr. - Senior
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(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 market value of this security at 12/31/03 was $298,324, which
represented 1.36% of the Fund's net assets. This security is considered to
be illiquid.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GLOBAL UTILITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $17,980,102) $ 20,440,552
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,399,552) 1,399,552
- -------------------------------------------------------------
Receivables for:
Fund shares sold 919
- -------------------------------------------------------------
Dividends and interest 37,781
- -------------------------------------------------------------
Amount due from advisor 6,356
- -------------------------------------------------------------
Investments matured (Note 8) 5,270
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 41,081
=============================================================
Total assets 21,931,511
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 3,800
- -------------------------------------------------------------
Deferred compensation and retirement plans 41,810
- -------------------------------------------------------------
Accrued administrative services fees 8,525
- -------------------------------------------------------------
Accrued distribution fees -- Series II 126
- -------------------------------------------------------------
Accrued transfer agent fees 546
- -------------------------------------------------------------
Accrued operating expenses 18,981
=============================================================
Total liabilities 73,788
=============================================================
Net assets applicable to shares outstanding $ 21,857,723
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 33,956,307
- -------------------------------------------------------------
Undistributed net investment income 502,512
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (15,062,466)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 2,461,370
=============================================================
$ 21,857,723
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 21,459,288
_____________________________________________________________
=============================================================
Series II $ 398,435
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 1,923,199
_____________________________________________________________
=============================================================
Series II 35,780
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 11.16
_____________________________________________________________
=============================================================
Series II:
Net asset value and offering price per share $ 11.14
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$14,697) $ 766,911
- -------------------------------------------------------------
Dividends from affiliated money market funds 10,275
- -------------------------------------------------------------
Interest 35,121
=============================================================
Total investment income 812,307
=============================================================
EXPENSES:
Advisory fees 132,058
- -------------------------------------------------------------
Administrative services fees 80,560
- -------------------------------------------------------------
Custodian fees 20,003
- -------------------------------------------------------------
Distribution fees -- Series II 527
- -------------------------------------------------------------
Transfer agent fees 4,946
- -------------------------------------------------------------
Trustees' fees 8,728
- -------------------------------------------------------------
Professional fees 20,734
- -------------------------------------------------------------
Other 10,031
=============================================================
Total expenses 277,587
=============================================================
Less: Fees waived and expense offset
arrangements (13,051)
- -------------------------------------------------------------
Net expenses 264,536
=============================================================
Net investment income 547,771
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (3,668,247)
- -------------------------------------------------------------
Foreign currencies (4,453)
- -------------------------------------------------------------
Option contracts written 28,901
=============================================================
(3,643,799)
=============================================================
Change in net unrealized appreciation of:
Investment securities 6,587,111
- -------------------------------------------------------------
Foreign currencies 139
=============================================================
6,587,250
=============================================================
Net gain from investment securities, foreign
currencies and option contracts 2,943,451
=============================================================
Net increase in net assets resulting from
operations $ 3,491,222
_____________________________________________________________
=============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GLOBAL UTILITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 547,771 $ 762,574
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (3,643,799) (6,664,204)
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, and foreign currencies 6,587,250 (2,994,557)
=========================================================================================
Net increase (decrease) in net assets resulting from
operations 3,491,222 (8,896,187)
=========================================================================================
Distributions to shareholders from net investment income:
Series I (751,973) (735,979)
- -----------------------------------------------------------------------------------------
Series II (13,497) (3,622)
=========================================================================================
Decrease in net assets resulting from distributions (765,470) (739,601)
=========================================================================================
Share transactions-net:
Series I (2,157,103) (6,268,289)
- -----------------------------------------------------------------------------------------
Series II 254,575 109,263
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,902,528) (6,159,026)
=========================================================================================
Net increase (decrease) in net assets 823,224 (15,794,814)
=========================================================================================
NET ASSETS:
Beginning of year 21,034,499 36,829,313
=========================================================================================
End of year (including undistributed net investment income
of $502,512 and $719,994 for 2003 and 2002,
respectively) $21,857,723 $ 21,034,499
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Global 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
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. 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.
The Fund's investment objective is to achieve a high total return. Each
company listed in the Schedule of Investments is organized in the United States
of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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
AIM V.I. GLOBAL UTILITIES FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, 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.
H. 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.
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 AIM at the annual rate of 0.65% of the first
$250 million of the Fund's average daily net assets, plus 0.60% of the Fund's
average daily net assets in excess of $250 million. AIM has contractually agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
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. For the
year ended December 31, 2003, AIM waived fees of $12,840.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $80,560 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $7,070 for such
services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $316 after AIM Distributors
reimbursed Plan fees of $211.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. GLOBAL UTILITIES FUND
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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 788,445 $4,828,100 $(4,916,769) $ -- $ 699,776 $ 5,056 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 788,445 4,828,100 (4,916,769) -- 699,776 5,219 --
====================================================================================================================================
$1,576,890 $9,656,200 $(9,833,538) $ -- $1,399,552 $10,275 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,606
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ----------------------------------------------------------
Beginning of year -- $ --
- ----------------------------------------------------------
Written 614 33,143
- ----------------------------------------------------------
Exercised (84) (4,242)
- ----------------------------------------------------------
Expired (530) (28,901)
==========================================================
End of year -- $ --
__________________________________________________________
==========================================================
</Table>
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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- --------------------------------------------------------------
Distributions paid from ordinary income $765,470 $739,601
______________________________________________________________
==============================================================
</Table>
AIM V.I. GLOBAL UTILITIES FUND
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 551,648
- -------------------------------------------------------------
Unrealized appreciation -- investments 1,919,281
- -------------------------------------------------------------
Temporary book/tax differences (43,546)
- -------------------------------------------------------------
Capital loss carryforward (14,525,967)
- -------------------------------------------------------------
Capital (par value and additional paid-in) 33,956,307
=============================================================
Total net assets $ 21,857,723
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales and the treatment of defaulted securities. The tax-basis
unrealized appreciation on investments amount includes appreciation on foreign
currencies of $920.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2009 $ 3,082,903
- -----------------------------------------------------------
December 31, 2010 8,206,319
- -----------------------------------------------------------
December 31, 2011 3,236,745
===========================================================
Total capital loss carryforward $14,525,967
___________________________________________________________
===========================================================
</Table>
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, 2003 was $6,282,747 and $8,534,664, 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 $527,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00%, which was due May 1, 2003. The estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 3,335,990
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,417,629)
=============================================================
Net unrealized appreciation of investment
securities $ 1,918,361
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $19,921,743.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions and
bond premium amortization on December 31, 2003, undistributed net investment
income was increased by $217, undistributed net realized gains decreased by
$217. This reclassification had no effect on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2003 2002
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
Sold:
Series I 285,243 $ 2,912,335 192,882 $ 2,309,033
- ----------------------------------------------------------------------------------------------------------------
Series II* 52,913 546,387 11,365 108,344
================================================================================================================
Issued as reinvestment of dividends:
Series I 70,278 751,973 77,066 735,979
- ----------------------------------------------------------------------------------------------------------------
Series II* 1,264 13,497 380 3,622
================================================================================================================
Reacquired:
Series I (581,794) (5,821,411) (838,194) (9,313,301)
- ----------------------------------------------------------------------------------------------------------------
Series II* (29,849) (305,309) (293) (2,703)
================================================================================================================
(201,945) $(1,902,528) (556,794) $(6,159,026)
________________________________________________________________________________________________________________
================================================================================================================
</Table>
* Series II shares commenced sales on March 26, 2002.
AIM V.I. GLOBAL UTILITIES FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.73 $ 13.55 $ 21.16 $ 22.80 $ 17.36
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.27(a) 0.31(a) 0.29(a)(b) 0.29(a) 0.32(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.56 (3.78) (6.25) (0.80) 5.49
=================================================================================================================================
Total from investment operations 1.83 (3.47) (5.96) (0.51) 5.81
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.40) (0.35) (0.22) (0.23) (0.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (1.43) (0.90) --
=================================================================================================================================
Total distributions (0.40) (0.35) (1.65) (1.13) (0.37)
=================================================================================================================================
Net asset value, end of period $ 11.16 $ 9.73 $ 13.55 $ 21.16 $ 22.80
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 19.03% (25.53)% (27.93)% (2.28)% 33.56%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,459 $20,923 $36,829 $49,536 $39,772
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets: 1.30%(d)(e) 1.22% 1.07% 1.10% 1.14%
=================================================================================================================================
Ratio of net investment income to average net assets 2.70%(d) 2.75% 1.59%(b) 1.23% 1.72%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 33% 54% 32% 50% 45%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.30 and the ratio of net investment income to average net
assets would have been 1.63%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges at the separate account level which if included would reduce
total returns for all periods.
(d) Ratios are based on average daily net assets of $20,105,817.
(e) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers and expense reimbursements was 1.36%.
AIM V.I. GLOBAL UTILITIES FUND
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------
MARCH 26
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.72 $ 13.54
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.26(a) 0.19(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.56 (3.66)
==============================================================================================
Total from investment operations 1.82 (3.47)
==============================================================================================
Less distributions from net investment income (0.40) (0.35)
==============================================================================================
Net asset value, end of period $11.14 $ 9.72
______________________________________________________________________________________________
==============================================================================================
Total return(b) 18.94% (25.55)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 398 $ 111
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.45%(c) 1.45%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 1.61%(c) 1.51%(d)
==============================================================================================
Ratio of net investment income to average net assets 2.55%(c) 2.52%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 33% 54%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods.
(c) Ratios are based on average daily net assets of $210,734.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of
AIM V.I. GLOBAL UTILITIES FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Financial Services, the Commissioner of Securities for the State of Georgia, the
Office of the State Auditor for the State of West Virginia, and the Office of
the Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
NOTE 13--SIGNIFICANT EVENT
On December 9, 2003, the Board of Trustees approved an Agreement and Plan of
Reorganization (the "Plan") under which all of the assets of the Fund will be
transferred to INVESCO VIF-Utilities Fund ("Buying Fund"), an investment
portfolio of INVESCO Variable Investment Funds, Inc. ("Buyer"). The Buyer will
issue shares of each class of the Buying Fund to shareholders of the
corresponding class of shares of the Fund. The Plan requires approval of the
Fund's shareholders and will be submitted to the shareholders for their
consideration at a meeting to be held on March 26, 2004. If the Plan is approved
by the shareholders of the Fund and certain conditions required by the Plan are
satisfied, the transaction is expected to become effective on or about April 30,
2004.
AIM V.I. GLOBAL UTILITIES FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Global Utilities Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the years or periods in the five year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Global Utilities Fund as of December 31, 2003, 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 years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. GLOBAL UTILITIES FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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
- ----------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company); and
President Director and Vice Chairman, AMVESCAP PLC and
Chairman of 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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and 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
- ----------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ----------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and Captaris,
Inc. (unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief (insurance company)
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 Century Administaff, Discovery
Trustee Group, Inc. (government affairs company) and Global Education Fund
Texana Timber LP (sustainable forestry company) (non-profit)
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. GLOBAL UTILITIES FUND
Trustees and Officers (continued)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and General Counsel, A I M Management Group Inc.
Chief Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
- ----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, AIM
Investment Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
AIM V.I. GLOBAL UTILITIES FUND
AIM V.I. GOVERNMENT SECURITIES FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. GOVERNMENT SECURITIES FUND seeks to
achieve a high level of current income consistent
with reasonable concern for safety of principal.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. GOVERNMENT SECURITIES FUND
TREASURY SELL-OFF
HINDERS FUND PERFORMANCE
For the year ended December 31, 2003, The nation's gross domestic product Treasury market totaled $530.5 billion
AIM V.I. Government Securities Fund (GDP), generally considered the broadest during the first three quarters of 2003,
Series I and Series II shares returned measure of economic activity, expanded 24.9% higher than during the same period
1.07% and 0.93%, respectively. For the at an annualized rate of 1.4% in the of 2002. The industry association
same period, the fund's broad market first quarter, 3.1% in the second attributed this increase to rising
index, the Lehman U.S. Aggregate Bond quarter, 8.2% in the third quarter, and deficits prompted by a slowdown in tax
Index, returned 4.10%; its 4.0% in the fourth quarter of 2003. receipts and rising outlays, including
style-specific index, the Lehman Despite this growth in GDP, the Federal the costs of military operations in Iraq
Intermediate U.S. Government and Reserve (the Fed) remained and homeland security-related spending.
Mortgage Index, returned 2.74%; and its accommodative. For the first half of the
peer group index, the Lipper year, the Fed kept the short-term Long-term debt issuance by federal
Intermediate U.S. Government Fund Index, federal funds rate at 1.25%. In June agencies totaled $1.01 trillion during
returned 2.18%. The fund underperformed 2003, it reduced that rate to 1.00%, its the first three quarters of 2003, up
its broad market index because the fund lowest level since 1958. At the time, 36.5% from the same period of 2002. The
does not invest in corporate bonds, the Fed said it favored a more expansive mortgage-backed sector had the highest
which were the best-performing component monetary policy because the economy had issuance, as refinancing and a strong
of the Lehman U.S. Aggregate Bond Index not yet exhibited sustainable growth. residential real estate market boosted
for the year ended December 31, 2003. bond supply. Issuance of
Fed comments, and hopes of an mortgage-related securities totaled
MARKET CONDITIONS economic rebound, caused interest rates $2.58 trillion in the first three
to rise sharply beginning in mid-June. quarters of 2003, higher than the $2.31
In the U.S. fixed-rate securities These sharply higher rates caused the trillion of issuance for all of 2002.
market, the high yield market rose Treasury bond market to sell off
28.97%, as measured by the Lehman High throughout the summer, on the strength YOUR FUND
Yield Index, outperforming of data that suggested the economy was
investment-grade issues for the year showing signs of a strong, sustainable The long duration benefited the fund
covered by this report. Among the recovery. Thereafter, the bond market over the last couple of years and the
investment-grade segments of the Lehman rallied as investors had second thoughts first half of 2003, as the Fed eased the
U.S. Aggregate Bond Index, fixed-rate about the level and sustainability of money supply and interest rates
mortgage-backed securities, U.S. agency economic growth. declined. Likewise, it was beneficial to
investments, and U.S. Treasuries of be overweight in Treasury and agency
various maturities returned 3.07%, According to The Bond Market securities. But a long duration and an
2.59%, and 2.24%, respectively, for the Association, an industry association, overweight position in Treasury and
same period. new issue activity in the U.S. bond agency securities hindered fund
markets remained strong for the year. performance during the summer interest
Gross coupon issuance in the U.S. rate rise mentioned above. They held
back fund performance during the 'summer
storm' to such a degree that it
overshadowed the fund's generally good
performance during the rest of the year.
</Table>
<Table>
<Caption>
===================================================================================================================================
TOP ISSUERS* as of 12/31/03 PORTFOLIO COMPOSITION FUND VS. INDEXES
- -----------------------------------------------------------------------------------------------------------------------------------
1. Federal National As of 12/31/03 and based on total Total returns 12/31/02 - 12/31/03,
Mortgage Association (FNMA) 51.3% investments excluding product issuer charges
2. Federal Home Loan
Mortgage Corp. (FHLMC) 25.3 [PIE CHART] Series I Shares 1.07%
3. Government National Series II Shares 0.93
Mortgage Association (GNMA) 10.4 MORTGAGE U.S. AGENCY Lehman U.S. Aggregate Bond Index 4.10
4. U.S. Treasury 5.9 OBLIGATIONS 68.0% (Broad Market Index)
5. Federal Farm Credit Bank 4.6 NON-MORTGAGE U.S. AGENCY Lehman Intermediate
6. Tennessee Valley Authority 2.4 OBLIGATIONS 21.6% U.S. Government and Mortgage
7. Federal Home Loan Bank 2.3 U.S. TREASURY OBLIGATIONS 5.4% Index 2.74
8. Private Export Funding Company 1.3 CASH 5.0% (Style-specific Index)
Lipper Intermediate
WEIGHTED AVERAGE MATURITY 3.84 years U.S. Government Fund Index 2.18
AVERAGE DURATION 2.86 years (Peer Group Index)
TOTAL NUMBER OF HOLDINGS* 352
TOTAL NET ASSETS $548.8 million Source: Lipper, Inc.
===================================================================================================================================
</Table>
<Table>
=============================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
CLINT W. DUDLEY
SCOT W. JOHNSON, LEAD MANAGER
=============================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
<Caption>
AIM V.I. GOVERNMENT SECURITIES FUND
Shortening the fund's duration during RESULTS OF A $10,000 INVESTMENT
this period of rising interest rates and 5/5/93 - 12/31/03
bond price volatility allowed us to INDEX DATA FROM 4/30/93
better stabilize the fund's net asset
value. Shortening the fund's duration LIPPER INTERMEDIATE AIM V.I. GOVERNMENT
also proved to be beneficial both in LEHMAN U.S. AGGREGATE U.S. GOVERNMENT SECURITIES FUND
absolute and relative terms. In a rising BOND INDEX FUND INDEX SERIES I SHARES
interest rate environment, when bond 5/5/1993 10000 10000 10000
prices are declining, a shorter duration 12/31/1993 10466 10383 10355
helps in absolute terms because the NAV 12/31/1994 10161 9998 9970
of a fund's with a shorter duration will 12/31/1995 12038 11554 11520
fall less than the NAV of a fund with a 12/31/1996 12475 11904 11784
longer duration. Having a duration 12/31/1997 13680 12918 12744
shorter than one's index, such as we 12/31/1998 14868 13974 13729
did, can provide better returns relative 12/31/1999 14746 13780 13548
to one's benchmark. Later in the year, 12/31/2000 16460 15319 14920
we shifted more of the fund's assets 12/31/2001 17850 16480 15875
into mortgage- backed securities. 12/31/2002 19681 18127 17399
Mortgage-backed securities provided a 12/31/2003 20489 18091 17588
sizable income premium over Treasury and
agency securities during a period of Source: Lipper, Inc.
largely range-bound interest rates.
Past performance cannot guarantee comparable future results.
The fund's yield increased during the
year as interest rates rose and as
mortgage-backed securities accounted for In evaluating this chart, please note that the chart uses a logarithmic scale
a larger portion of fund assets. As we along the vertical axis (the value scale). This means that each scale increment
saw more encouraging economic data, we always represents the same percent change in price; in a linear chart each scale
positioned the fund somewhat increment always represents the same absolute change in price. In this example,
defensively, with a duration shorter the scale increment between $5,000 and $10,000 is the same as that between
than its index and a greater portion of $10,000 and $20,000. In a linear chart, the latter scale increment would be
fund assets invested in mortgage-backed twice as large. The benefit of using a logarithmic scale is that it better
securities. illustrates performance during the fund's early years before reinvested
distributions and compounding create the potential for the original investment
IN CLOSING 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
While the year ended December 31, 2003, value of the fund and the indexes during the fund's early years. AIM uses a
was a challenging one for government logarithmic scale in financial reports of funds that have more than five years
securities, we continued to manage the of performance history.
fund in an effort to achieve a high
level of current income consistent with *Series II shares were first offered ABOUT INDEXES USED IN THIS REPORT
reasonable concern for safety of 9/19/01. Returns prior to that date are
principal by investing the bulk of fund hypothetical results based on the The unmanaged Lehman U.S. Aggregate Bond
assets in debt securities issued, performance of Series I shares from Index, which represents the U.S.
guaranteed, or otherwise backed by the 12/31/93, adjusted to reflect Series II investment-grade fixed-rate bond market
U.S. government. 12b-1 fees. The Series I and Series II (including government and corporate
shares invest in the same portfolio of securities, mortgage pass-through
---------- securities and will have substantially securities and asset-backed securities),
similar performance, except to the is compiled by Lehman Brothers, a global
AVERAGE ANNUAL TOTAL RETURNS extent that expenses borne by each class investment bank.
- --------------------------------------- differ.
As of 12/31/03 The unmanaged Lehman High Yield
Current performance may be lower or Index, which represents the performance
SERIES I SHARES higher than the performance data quoted. of high-yield debt securities, is
10 Years 5.44% Past performance cannot guarantee compiled by Lehman Brothers, a global
5 Years 5.08 comparable future results. Due to investment bank.
1 Year 1.07 significant market volatility, results
of an investment made today may differ The unmanaged Lehman Intermediate
SERIES II SHARES* substantially from the historical U.S. Government and Mortgage Index is a
10 Years 5.18% performance shown. Please see your market-weighted combination of the
5 Years 4.82 financial advisor for more current Lehman Intermediate Government and the
1 Year 0.93 performance. Fund performance figures Lehman Mortgage indexes. The index
are historical, and they reflect fund contains securities with maturities
expenses, the reinvestment of ranging from one to 10 years. It is
distributions and changes in net asset compiled by Lehman Brothers, a global
value. The fund's investment return and investment bank.
principal value will fluctuate, so an
investor's shares, when redeemed, may be The Lipper Intermediate U.S.
worth more or less than their original Government Fund Index represents an
cost. average of the 30 largest
intermediate-term U.S. government bond
AIM variable insurance funds are funds tracked by Lipper, Inc., an
offered through insurance company independent mutual fund performance
separate accounts to fund variable monitor.
annuity contracts and variable life
insurance policies, and through certain The Bond Market Association is a
pension or retirement plans. Performance trade association representing the
figures given represent the fund and are largest securities markets in the world,
not intended to reflect actual variable the $17 trillion debt markets. Its
product values. They do not reflect membership includes securities firms and
sales charges, expenses and fees at the banks, including large, multi-product
separate account level. Sales charges, firms and companies with special market
expenses and fees, which are determined niches.
by the product issuers, will vary and
will lower the total return. A direct investment cannot be made in
an index. Unless otherwise indicated,
PRINCIPAL RISKS OF INVESTING IN THE FUND index results include reinvested
dividends, and they do not reflect sales
U.S. Treasury securities such as bills, charges. Performance of an index of
notes and bonds offer a high degree of funds reflects fund expenses;
safety, and they guarantee the payment performance of a market index does not.
of principal and any applicable interest
if held to maturity. Fund shares are not A description of the policies and
insured, and their value and yield will procedures that the Fund uses to
vary with market conditions. determine how to vote proxies relating
to portfolio securities is available
The fund may invest a portion of its without charge, upon request, by calling
assets in mortgage- backed securities, 800-959-4246, or on the AIM Web site,
which may lose value if mortgages are AIMinvestments.com.
prepaid in response to falling interest
rates.
VIGOV-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-97.56%
FEDERAL FARM CREDIT BANK-4.63%
Bonds,
6.00%, 06/11/08 to 03/07/11 $ 4,600,000 $ 5,100,280
- -------------------------------------------------------------------------
5.75%, 01/18/11 2,000,000 2,193,220
- -------------------------------------------------------------------------
Medium Term Notes,
5.75%, 12/07/28 2,500,000 2,549,025
- -------------------------------------------------------------------------
Unsec. Bonds,
7.25%, 06/12/07 13,625,000 15,557,570
=========================================================================
25,400,095
=========================================================================
FEDERAL HOME LOAN BANK-2.25%
Unsec. Bonds,
6.50%, 11/15/05 275,000 297,817
- -------------------------------------------------------------------------
7.25%, 02/15/07 895,000 1,015,664
- -------------------------------------------------------------------------
4.88%, 05/15/07 4,000,000 4,256,720
- -------------------------------------------------------------------------
3.50%, 11/15/07 4,650,000 4,718,355
- -------------------------------------------------------------------------
5.48%, 01/28/09 1,500,000 1,629,645
- -------------------------------------------------------------------------
Unsec. Medium Term Notes,
8.17%, 12/16/04 400,000 425,828
=========================================================================
12,344,029
=========================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-25.28%
Pass Through Ctfs.,
6.00%, 11/01/08 to 02/01/33 12,334,811 12,858,391
- -------------------------------------------------------------------------
6.50%, 12/01/08 to 08/01/31 15,122,302 15,947,814
- -------------------------------------------------------------------------
7.00%, 11/01/10 to 02/01/33 12,170,001 12,943,550
- -------------------------------------------------------------------------
5.00%, 05/01/18 to 11/01/18 23,235,441 23,706,581
- -------------------------------------------------------------------------
10.50%, 08/01/19 35,107 39,238
- -------------------------------------------------------------------------
8.50%, 09/01/20 to 10/01/29 2,109,977 2,287,911
- -------------------------------------------------------------------------
10.00%, 03/01/21 570,614 637,723
- -------------------------------------------------------------------------
8.00%, 10/01/23 to 11/17/30 3,277,662 3,582,741
- -------------------------------------------------------------------------
7.50%, 09/01/29 to 07/01/32 6,337,148 6,808,853
- -------------------------------------------------------------------------
5.50%, 10/01/33 1,205,693 1,221,252
- -------------------------------------------------------------------------
Pass Through Ctfs., TBA,
4.50%, 01/01/19(a) 18,000,000 18,023,555
- -------------------------------------------------------------------------
6.00%, 01/01/34(a) 9,600,000 9,932,583
- -------------------------------------------------------------------------
Unsec. Global Bonds,
4.00%, 10/29/07 16,000,000 16,267,680
- -------------------------------------------------------------------------
Unsec. Global Notes,
5.13%, 10/15/08 4,000,000 4,280,920
- -------------------------------------------------------------------------
5.00%, 07/30/09 8,800,000 8,956,024
- -------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
<Caption>
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-(CONTINUED)
Unsec. Medium Term Notes,
6.00%, 06/27/17 $ 1,200,000 $ 1,232,220
=========================================================================
138,727,036
=========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-51.33%
Pass Through Ctfs.,
7.00%, 03/01/04 to 06/01/33 29,770,537 31,699,469
- -------------------------------------------------------------------------
7.50%, 11/01/09 to 10/01/31 11,484,770 12,415,800
- -------------------------------------------------------------------------
6.50%, 10/01/10 to 05/01/33 40,364,254 42,541,292
- -------------------------------------------------------------------------
10.00%, 03/01/16 196,142 218,056
- -------------------------------------------------------------------------
5.50%, 12/01/16 to 12/01/33 39,640,787 40,626,888
- -------------------------------------------------------------------------
6.00%, 07/01/17 to 11/01/33 68,477,869 71,240,249
- -------------------------------------------------------------------------
8.50%, 11/01/17 to 12/01/26 5,520,285 6,043,143
- -------------------------------------------------------------------------
5.00%, 11/01/17 to 08/01/33 7,356,473 7,512,783
- -------------------------------------------------------------------------
8.00%, 12/01/17 to 04/01/32 19,265,176 20,741,361
- -------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 03/01/34(a) 8,316,000 8,220,821
- -------------------------------------------------------------------------
Series B, Unsec. Medium Term Notes,
6.88%, 09/10/12 to 09/24/12 3,500,000 3,871,375
- -------------------------------------------------------------------------
STRIPS, Unsec. Sub. Deb.,
7.37%, 10/09/19(b) 1,800,000 726,246
- -------------------------------------------------------------------------
Unsec. Global Bonds,
6.63%, 11/15/30 700,000 797,545
- -------------------------------------------------------------------------
Unsec. Global Notes,
7.00%, 07/15/05(c) 18,300,000 19,763,268
- -------------------------------------------------------------------------
5.25%, 04/15/07 2,175,000 2,338,799
- -------------------------------------------------------------------------
6.00%, 01/18/12 7,500,000 7,787,025
- -------------------------------------------------------------------------
4.38%, 09/15/12 4,900,000 4,842,670
- -------------------------------------------------------------------------
Unsec. Medium Term Notes,
7.38%, 03/28/05 300,000 321,975
=========================================================================
281,708,765
=========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-10.38%
Pass Through Ctfs.,
7.50%, 03/15/08 to 08/15/28 1,403,941 1,518,956
- -------------------------------------------------------------------------
9.00%, 09/15/08 to 10/15/16 20,509 22,572
- -------------------------------------------------------------------------
11.00%, 10/15/15 8,287 9,433
- -------------------------------------------------------------------------
9.50%, 09/15/16 4,877 5,460
- -------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 7,772 8,819
- -------------------------------------------------------------------------
10.00%, 06/15/19 194,550 218,867
- -------------------------------------------------------------------------
6.50%, 12/15/23 to 12/15/33 35,834,919 37,840,742
- -------------------------------------------------------------------------
8.00%, 07/15/24 to 07/15/26 780,976 853,922
- -------------------------------------------------------------------------
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-(CONTINUED)
Pw7.00%, 04/15/28 to 06/15/33 $ 6,673,860 $ 7,143,717
- -------------------------------------------------------------------------
6.00%, 10/15/31 to 08/15/33 8,960,829 9,331,005
=========================================================================
56,953,493
=========================================================================
PRIVATE EXPORT FUNDING COMPANY-1.25%
Series G, Sec. Gtd. Notes,
6.67%, 09/15/09 2,701,000 3,091,592
- -------------------------------------------------------------------------
Series J, Sec. Gtd. Notes,
7.65%, 05/15/06 1,500,000 1,684,230
- -------------------------------------------------------------------------
Series UU, Sec. Gtd. Notes,
7.95%, 11/01/06 2,000,000 2,100,020
=========================================================================
6,875,842
=========================================================================
TENNESSEE VALLEY AUTHORITY-2.44%
Global Bonds,
4.88%, 12/15/06(d) 1,600,000 1,717,856
- -------------------------------------------------------------------------
Series A, Global Bonds,
5.63%, 01/18/11 4,800,000 5,227,440
- -------------------------------------------------------------------------
Series G, Global Bonds,
5.38%, 11/13/08 6,000,000 6,480,300
=========================================================================
13,425,596
=========================================================================
Total U.S. Government Agency Securities
(Cost $532,279,940) 535,434,856
=========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------
U.S. TREASURY SECURITIES-5.89%
U.S. TREASURY NOTES-3.82%
6.75%, 05/15/05 $ 7,500,000 $ 8,041,425
- -------------------------------------------------------------------------
4.63%, 05/15/06 6,375,000 6,758,520
- -------------------------------------------------------------------------
4.00%, 11/15/12 1,480,000 1,467,287
- -------------------------------------------------------------------------
4.25%, 08/15/13(c) 4,700,000 4,708,789
=========================================================================
20,976,021
=========================================================================
U.S. TREASURY BONDS-1.82%
9.25%, 02/15/16 550,000 789,850
- -------------------------------------------------------------------------
7.50%, 11/15/16 to 11/15/24 6,050,000 7,816,999
- -------------------------------------------------------------------------
7.63%, 02/15/25 550,000 727,116
- -------------------------------------------------------------------------
6.88%, 08/15/25 500,000 612,110
=========================================================================
9,946,075
=========================================================================
U.S. TREASURY STRIPS-0.25%
6.79%, 11/15/18(b) 3,005,000 1,380,437
=========================================================================
Total U.S. Treasury Securities (Cost
$31,304,738) 32,302,533
=========================================================================
<Caption>
SHARES
1/8X
MONEY MARKET FUNDS-5.41%
Government & Agency Portfolio (Cost
$29,711,054)(e) 29,711,054 29,711,054
=========================================================================
TOTAL INVESTMENTS-108.86% (Cost $593,295,732) 597,448,443
=========================================================================
OTHER ASSETS LESS LIABILITIES-(8.86%) (48,641,293)
=========================================================================
NET ASSETS-100.00% $548,807,150
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Gtd. - Guaranteed
Sec. - Secured
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security purchased on forward commitment basis. These securities are subject
to dollar roll transactions. See Note 1, Section C.
(b) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(c) Principal amount has been deposited in escrow with broker as collateral for
reverse repurchase agreements outstanding at 12/31/03.
(d) Security has an irrevocable call or mandatory put by the issuer. Maturity
date reflects such call or put.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$563,584,678) $567,737,389
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $29,711,054) 29,711,054
- ------------------------------------------------------------
Receivables for:
Investments sold 8,161,967
- ------------------------------------------------------------
Fund shares sold 753,938
- ------------------------------------------------------------
Dividends and interest 4,100,545
- ------------------------------------------------------------
Principal paydowns 52,028
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 54,321
- ------------------------------------------------------------
Other assets 15,721
============================================================
Total assets 610,586,963
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 35,949,660
- ------------------------------------------------------------
Fund shares reacquired 430,140
- ------------------------------------------------------------
Reverse repurchase agreements 24,992,000
- ------------------------------------------------------------
Deferred compensation and retirement plans 61,556
- ------------------------------------------------------------
Accrued interest expense 2,773
- ------------------------------------------------------------
Accrued administrative services fees 321,543
- ------------------------------------------------------------
Accrued distribution fees -- Series II 13,993
- ------------------------------------------------------------
Accrued transfer agent fees 1,353
- ------------------------------------------------------------
Accrued operating expenses 6,795
============================================================
Total liabilities 61,779,813
============================================================
Net assets applicable to shares outstanding $548,807,150
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $532,746,184
- ------------------------------------------------------------
Undistributed net investment income 24,867,108
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (12,958,853)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 4,152,711
============================================================
$548,807,150
____________________________________________________________
============================================================
NET ASSETS:
Series I $526,482,060
- ------------------------------------------------------------
Series II $ 22,325,090
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I $ 43,034,332
____________________________________________________________
============================================================
Series II $ 1,834,650
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 12.23
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 12.17
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Interest $ 19,893,351
- -------------------------------------------------------------
Dividends from affiliated money market funds 673,297
=============================================================
Total investment income 20,566,648
=============================================================
EXPENSES:
Advisory fees 2,629,869
- -------------------------------------------------------------
Administrative services fees 1,416,373
- -------------------------------------------------------------
Custodian fees 69,733
- -------------------------------------------------------------
Distribution fees -- Series II 53,568
- -------------------------------------------------------------
Interest 33,528
- -------------------------------------------------------------
Transfer agent fees 17,620
- -------------------------------------------------------------
Trustees' fees 16,025
- -------------------------------------------------------------
Other 65,612
=============================================================
Total expenses 4,302,328
=============================================================
Less: Fees waived and expense offset
arrangements (10,465)
=============================================================
Net expenses 4,291,863
=============================================================
Net investment income 16,274,785
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (3,652,253)
- -------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (7,310,145)
=============================================================
Net gain (loss) from investment securities (10,962,398)
=============================================================
Net increase in net assets resulting from
operations $ 5,312,387
_____________________________________________________________
=============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 16,274,785 $ 10,436,582
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (3,652,253) 3,331,182
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (7,310,145) 10,126,375
==========================================================================================
Net increase in net assets resulting from operations 5,312,387 23,894,139
==========================================================================================
Distributions to shareholders from net investment income:
Series I (12,494,932) (7,651,576)
- ------------------------------------------------------------------------------------------
Series II (517,056) (254,364)
==========================================================================================
Total distributions from net investment income (13,011,988) (7,905,940)
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (188,872) --
- ------------------------------------------------------------------------------------------
Series II (8,037) --
==========================================================================================
Total distributions from net realized gains (196,909) --
==========================================================================================
Decrease in net assets resulting from distributions (13,208,897) (7,905,940)
==========================================================================================
Share transactions-net:
Series I 105,720,568 261,979,270
- ------------------------------------------------------------------------------------------
Series II 7,735,685 13,674,045
==========================================================================================
Net increase in net assets resulting from share
transactions 113,456,253 275,653,315
==========================================================================================
Net increase in net assets 105,559,743 291,641,514
==========================================================================================
NET ASSETS:
Beginning of year 443,247,407 151,605,893
==========================================================================================
End of year (including undistributed net investment income
of $24,867,108 and $11,461,567 for 2003 and 2002,
respectively) $548,807,150 $443,247,407
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Government Securities 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
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. 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. The Fund's investment objective is to
achieve a high level of current income consistent with reasonable concern for
safety of principal.
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 -- Debt obligations that are issued or guaranteed by
the U.S. Treasury are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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 mean between the
last bid and asked prices. Securities for which market quotations are not
readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized 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. Short-term
obligations having 60 days or less to maturity are valued at amortized cost
which approximates market 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.
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. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price. The mortgage-backed securities that are repurchased
will bear the same interest rate as those sold, but generally will be
collateralized by different pools of mortgages with different prepayment
histories. During the period between the sale and repurchase, the Fund will
not be entitled to receive interest and principal payments on securities
sold. Proceeds of the sale may be invested in short-term instruments, and
the income from these investments, together with any additional fee income
received on the sale, could generate income for the Fund exceeding the
yield on the security sold. The difference between the selling price and
the future repurchase price is recorded as realized gain (loss). At the
time the Fund enters into the dollar roll, it will segregate liquid assets
having a dollar value equal to the repurchase price.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to repurchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to repurchase the securities. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income and net realized capital gains,
if any, are generally paid to separate accounts of participating insurance
companies annually and recorded on ex-dividend date.
E. 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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
F. 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.
AIM V.I. GOVERNMENT SECURITIES 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 AIM at the annual rate of 0.50% on the first
$250 million of the Fund's average daily net assets, plus 0.45% of the Fund's
average daily net assets in excess of $250 million. AIM has voluntarily agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
Voluntary expense limitations may be modified or discontinued at any time
without further notice to investors. 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. For the year ended December 31, 2003, AIM
waived fees of $10,193.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $1,416,373 for such
services, of which AIM retained $138,027 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $18,938 for
such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $53,568.
Certain officers and trustees of the Trust are 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Government & Agency
Portfolio $24,390,740 $918,258,266 $(912,937,952) $ -- $29,711,054 $673,297 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of custodian
credits resulting from periodic overnight cash balances at the custodian. For
the year ended December 31, 2003, the Fund received reductions in custodian fees
of $272 under an expense offset arrangement, which resulted in a reduction of
the Fund's total expenses of $272.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $5,080
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
The Fund may enter into reverse repurchase agreements. Reverse repurchase
agreements involve the sale of securities held by the Fund, with an agreement
that the Fund will repurchase such securities at an agreed upon price and date.
The Fund will use the proceeds of a reverse repurchase agreement (which are
considered to be borrowings under the 1940 Act) to purchase other permitted
securities either maturing, or under an agreement to resell, at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement. The agreements are collateralized by the underlying securities and
are carried at the amount at which the securities subsequently will be
repurchased as specified in the agreements. The maximum amount outstanding
during the year ended December 31, 2003 was $39,764,482 and averaged $3,308,082
per day with a weighted average interest rate of 1.01%.
AIM V.I. GOVERNMENT SECURITIES FUND
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------
Distributions paid from:
Ordinary income $13,015,275 $7,905,940
- ---------------------------------------------------------------
Long-term capital gain 193,622 --
===============================================================
Total distributions $13,208,897 $7,905,940
_______________________________________________________________
===============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 24,922,135
- -------------------------------------------------------------
Unrealized appreciation -- investments 3,960,249
- -------------------------------------------------------------
Temporary book/tax differences (55,027)
- -------------------------------------------------------------
Capital loss carryforward (11,708,442)
- -------------------------------------------------------------
Post-October capital loss deferral (1,057,949)
- -------------------------------------------------------------
Shares of beneficial interest 532,746,184
=============================================================
Total net assets $548,807,150
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------
December 31, 2011 $11,708,442
_______________________________________________________
=======================================================
</Table>
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, 2003 was $1,430,581,182 and $1,312,416,323, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $ 5,700,608
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,740,359)
=============================================================
Net unrealized appreciation of investment
securities $ 3,960,249
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $593,488,194.
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of paydowns on
mortgage-backed securities, on December 31, 2003, undistributed net investment
income was increased by $10,142,744 and undistributed net realized gain (loss)
decreased by $10,142,744. This reclassification had no effect on the net assets
of the Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2003 2002
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 27,798,982 $ 345,400,431 30,620,219 $ 373,370,909
- -------------------------------------------------------------------------------------------------------------------------
Series II 1,689,953 20,857,500 1,327,628 16,134,310
=========================================================================================================================
Issued as reinvestment of dividends:
Series I 1,038,804 12,683,804 624,618 7,651,576
- -------------------------------------------------------------------------------------------------------------------------
Series II 43,218 525,093 20,832 254,364
=========================================================================================================================
Reacquired:
Series I (20,353,168) (252,363,667) (9,762,219) (119,043,215)
- -------------------------------------------------------------------------------------------------------------------------
Series II (1,106,652) (13,646,908) (222,409) (2,714,629)
=========================================================================================================================
9,111,137 $ 113,456,253 22,608,669 $ 275,653,315
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.40 $ 11.53 $ 11.16 $ 10.63 $ 11.18
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36(a) 0.49(a) 0.59(a)(b) 0.66(a) 0.63(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.23) 0.61 0.12 0.41 (0.78)
============================================================================================================================
Total from investment operations 0.13 1.10 0.71 1.07 (0.15)
============================================================================================================================
Less distributions:
Dividends from net investment income (0.30) (0.23) (0.34) (0.54) (0.40)
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.00) -- -- -- --
============================================================================================================================
Total distributions (0.30) (0.23) (0.34) (0.54) (0.40)
============================================================================================================================
Net asset value, end of period $ 12.23 $ 12.40 $ 11.53 $ 11.16 $ 10.63
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 1.07% 9.59% 6.41% 10.12% (1.32)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $526,482 $428,322 $150,660 $84,002 $70,761
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 0.76%(d) 0.81% 1.08% 0.97% 0.90%
============================================================================================================================
Ratio of net investment income to average net assets 2.93%(d) 4.01% 5.09%(b) 6.03% 5.75%
============================================================================================================================
Ratio of interest expense to average net assets 0.01%(d) 0.01% 0.28% 0.12% 0.10%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 265% 170% 199% 87% 41%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began recording paydown gains and losses as adjustments to interest
income. Had the Fund not recorded paydown gains and losses as
adjustments to interest income, the net investment income per share
would have been $0.62 and the ratio of investment income to average net
assets would have been 5.40%. Per share and ratios for periods prior to
January 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not reflect charges at
the separate account level which if included would reduce total returns
for all periods shown.
(d) Ratios are based on average daily net assets of $535,210,363.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------
SEPTEMBER 19, 2001
YEAR ENDED DECEMBER (DATE SALES
31, COMMENCED) TO
--------------------- DECEMBER 31,
2003 2002 2001
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.35 $ 11.52 $11.84
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33(a) 0.46(a) 0.16(a)
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.22) 0.60 (0.14)
=========================================================================================================
Total from investment operations 0.11 1.06 0.02
=========================================================================================================
Less distributions:
Dividends from net investment income (0.29) (0.23) (0.34)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.00) -- --
=========================================================================================================
Total distributions (0.29) (0.23) (0.34)
=========================================================================================================
Net asset value, end of period $ 12.17 $ 12.35 $11.52
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) 0.93% 9.25% 0.22%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,325 $14,926 $ 946
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets 1.01%(c) 1.06% 1.41%(d)
=========================================================================================================
Ratio of net investment income to average net assets 2.68%(c) 3.76% 4.76%(d)
=========================================================================================================
Ratio of interest expense to average net assets 0.01%(c) 0.01% 0.28%(d)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate(e) 265% 170% 199%
_________________________________________________________________________________________________________
=========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $21,427,276.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
AIM V.I. GOVERNMENT SECURITIES FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. GOVERNMENT SECURITIES FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Government Securities Fund, a series of shares of beneficial interest of AIM
Variable Insurance Funds, including the schedule of investments as of December
31, 2003, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended and the financial highlights for each of the years or periods in the five
year period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Government Securities Fund as of December 31, 2003, 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 years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. GOVERNMENT SECURITIES FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company); and
President Director and Vice Chairman, AMVESCAP PLC and
Chairman of 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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and 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
- ----------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ----------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and Captaris,
Inc. (unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief (insurance company)
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 Century Administaff, Discovery
Trustee Group, Inc. (government affairs company) and Global Education Fund
Texana Timber LP (sustainable forestry company) (non-profit)
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. GOVERNMENT SECURITIES FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and General Counsel, A I M Management Group Inc.
Chief Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
- ----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, AIM
Investment Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed capital gains of $193,622 for the Fund's tax
year ended December 31, 2003, which will be taxed as long-term gain.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 11.33% was derived from U.S. Treasury
Obligations.
AIM V.I. GOVERNMENT SECURITIES FUND
AIM V.I. GROWTH FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. GROWTH FUND seeks growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. GROWTH FUND
EMPHASIS ON CYCLICAL STOCKS YOUR FUND
BENEFITS FUND PERFORMANCE
Our quantitative models and fundamental
For the year ended December 31, 2003, considered the broadest measure of research prompted us to position the
AIM V.I. Growth Fund Series I and Series economic activity, expanded at an fund for an economic recovery. This
II shares returned 31.24% and 30.88%, annualized rate of 1.4% in the first began in 2002 and continued in 2003, as
respectively. For the same period, the quarter, 3.1% in the second quarter, the economy appeared to strengthen and
fund's broad market index, the S&P 8.2% in the third quarter, and 4.0% in corporate earnings appeared to improve.
500--Registered Trademark-- Index, the fourth quarter of 2003. According to It accelerated further following the end
returned 28.67%; its style-specific Bloomberg, as of the close of the year, of hostilities in Iraq. Our fundamental
index, the Russell 1000--Registered approximately 64% of the companies in research led us to allocate an
Trademark-- Growth Index, returned the S&P 500 Index had reported increasing portion of fund assets to
29.75%; and its peer group index, the third-quarter earnings that exceeded cyclical large-cap companies
Lipper Large-Cap Growth Fund Index, analysts' expectations. -particularly in economically sensitive
returned 26.96%. The fund outperformed sectors, including information
the S&P 500 Index because of our heavier For the first half of the year, the technology, consumer discretionary, and
weighting in economically sensitive Federal Reserve (the Fed) kept the financials.
sectors, including the information short-term federal funds rate at 1.25%.
technology, consumer discretionary, and On June 25, 2003, it reduced that rate Individual stock selection
financials sectors. to 1.00%, its lowest level since 1958. contributed to overall fund performance
At the time, the Fed said it favored a for the year-even within sectors in
MARKET CONDITIONS more expansive monetary policy because which we underperformed our benchmark
the economy had not yet exhibited index. We began the year underweight
As noted above, the S&P 500 Index sustainable growth. By October, the Fed industrials stocks relative to our
provided positive returns for the year reported that economic expansion had style-specific benchmark, the Russell
ended December 31, 2003. It declined at increased and consumer spending was 1000 Growth Index. Signs of economic
the beginning of 2003, dropping to its generally stronger, although the job improvement caused many stocks in that
lowest level of the year on March 11, market remained weak. The Fed's November sector to perform well during 2003.
and then rallied. All sectors of the S&P Beige Book report cited "reasonably While we underperformed our benchmark
500 Index recorded gains for the year. broad-based" economic expansion in due to our underweight position in the
Information technology, materials, and October and early November and noted industrials sector, our individual
consumer discretionary were the that in most Federal Reserve districts industrials stocks outperformed those of
top-performing sectors while wages and the prices of finished goods the benchmark. By the close of the year,
telecommunications services, consumer and services remained fairly stable, our exposure to the industrials sector
staples, and health care were the retail spending increased on a increased due to the improving
weakest-performing sectors. year-over-year basis, manufacturing fundamentals across the group led by the
activity increased, and residential real continued pickup in economic activity.
During this rally, the United States estate activity remained strong while
and its allies took military action commercial real estate activity was Our increasing cyclical exposure led
against Iraq and toppled the regime of weak. us to downplay exposure in less
Saddam Hussein. The nation's gross economically sensitive sectors including
domestic product, generally consumer staples and health care.
Despite our underweight position
</Table>
<Table>
<Caption>
=================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ---------------------------------------------------------------------------------------------------------------------------------
1. Cisco Systems, Inc. 3.4% 1. Semiconductors 8.2% Total returns 12/31/02-12/31/03,
2. Tyco International Ltd. 2. Systems Software 7.0 excluding product issuer charges
(Bermuda) 3.2 3. Communications Equipment 6.7
3. Boston Scientific Corp. 3.1 4. Pharmaceuticals 5.4 Series I Shares 31.24%
4. Microsoft Corp. 2.9 5. Investment Banking & Series II Shares 30.88
5. Citigroup Inc. 2.4 Brokerage 5.1 S&P 500 Index 28.67
6. Novellus Systems, Inc. 2.2 6. Health Care Equipment 4.9 (Broad Market Index)
7. Amazon.com, Inc. 1.9 7. Diversified Commercial Russell 1000--Registered
8. VERITAS Software Corp. 1.9 Services 3.4 Trademark--Growth Index 29.75
9. Analog Devices, Inc. 1.8 8. Industrial Conglomerates 3.2 (Style-specific Index)
10. Genentech, Inc. 1.8 9. Consumer Finance 3.0 Lipper Large-Cap Growth
10. Biotechnology 2.9 Fund Index 26.96
(Peer Group Index)
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 90
TOTAL NET ASSETS $402.3 million
=================================================================================================================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
<Caption>
AIM V.I. GROWTH FUND
in health care stocks relative to our RESULTS OF A $10,000 INVESTMENT
benchmark, our individual health care 5/5/93-12/31/03
holdings- particularly HMO, Index data from 4/30/93
biotechnology, and medical device
companies-contributed positively to fund LIPPER
performance. Fortunately, there were few LARGE-CAP AIM V.I.
individual stocks that negatively RUSSELL 1000 GROWTH FUND GROWTH FUND-
affected fund performance to any great S&P 500 INDEX GROWTH INDEX INDEX SERIES I SHARES
extent. 5/5/1993 10000 10000 10000 10000
12/31/1993 10807 10809 11222 11068
Among individual holdings, Cisco and 12/31/1994 10949 11092 11130 10794
Tyco were two stocks that helped fund 12/31/1995 15058 15216 15016 14549
performance for the year. In November, 12/31/1996 18513 18734 18103 17178
Cisco announced that its revenues and 12/31/1997 24687 24446 23098 21794
earnings increased from the first 12/31/1998 31748 33909 31523 29231
quarter of fiscal 2003 to the first 12/31/1999 38425 45152 42498 39529
quarter of 2004, and that its first 12/31/2000 34928 35027 34135 31427
quarter 2004 earnings exceeded those of 12/31/2001 30780 27873 25988 20777
the fourth quarter of 2003. The 12/31/2002 23980 20101 18682 14341
company's chief executive officer said 12/31/2003 30854 26801 23719 18822
in December that his company's customers
appeared to be increasing their Source: Lipper, Inc.
information technology spending plans.
Tyco, a long-term fund holding that we Past performance cannot guarantee comparable future results.
believe is highly leveraged to an
improving economy, underwent a In evaluating this chart, please note that the chart uses a logarithmic scale
significant restructuring effort over along the vertical axis (the value scale). This means that each scale increment
the last year and a half. Despite its always represents the same percent change in price; in a linear chart each scale
positive performance in 2003, we increment always represents the same absolute change in price. In this example,
continue to believe the stock is the scale increment between $5,000 and $10,000 is the same as that between
undervalued relative to its prospects. $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
IN CLOSING illustrates performance during the fund's early years before reinvested
distributions and compounding create the potential for the original investment
We were pleased to be able to provide to grow to very large numbers. Had the chart used a linear scale along its
shareholders with a positive total vertical axis, you would not be able to see as clearly the movements in the
return for the year ended December 31, value of the fund and the indexes during the fund's early years. AIM uses a
2003, by investing the bulk of fund logarithmic scale in financial reports of funds that have more than five years
assets in seasoned and better of performance history.
capitalized large-cap companies that
have experienced above-average growth in Current performance may be lower or of Russell 1000 companies with higher
earnings and that have, in our opinion, higher than the performance data quoted. price/book ratios and higher forecasted
excellent prospects for future growth. Past performance cannot guarantee growth values.
comparable future results. Due to
significant market volatility, results The unmanaged Standard & Poor's
AVERAGE ANNUAL TOTAL RETURNS of an investment made today may differ Composite Index of 500 Stocks (the S&P
- ---------------------------------------- substantially from the historical 500 Index) is an index of common stocks
As of 12/31/03 performance shown. Please see your frequently used as a general measure of
financial advisor for more current U.S. stock market performance.
SERIES I SHARES performance. Fund performance figures
10 Years 5.45% are historical, and they reflect fund Bloomberg, Inc., is a well-known
5 Years -8.42 expenses, the reinvestment of independent financial research and
1 Year 31.24 distributions and changes in net asset reporting firm.
value. The fund's investment return and
SERIES II SHARES* principal value will fluctuate, so an A direct investment cannot be made in
10 Years 5.20% investor's shares, when redeemed, may be an index. Unless otherwise indicated,
5 Years -8.65 worth more or less than their original index results include reinvested
1 Year 30.88 cost. dividends, and they do not reflect sales
charges. Performance of an index of
*Series II shares were first offered AIM variable insurance funds are funds reflects fund expenses;
9/19/01. Returns prior to that date are offered through insurance company performance of a market index does not.
hypothetical results based on the separate accounts to fund variable
performance of Series I shares from annuity contracts and variable life Industry classifications used in this
12/31/93, adjusted to reflect Series II insurance policies, and through certain report are generally according to the
12b-1 fees. The Series I and Series II pension or retirement plans. Performance Global Industry Classification Standard,
shares invest in the same portfolio of figures given represent the fund and are which was developed by and is the
securities and will have substantially not intended to reflect actual variable exclusive property and a service mark of
similar performance, except to the product values. They do not reflect Morgan Stanley Capital International
extent that expenses borne by each class sales charges, expenses and fees at the Inc. and Standard & Poor's.
differ. separate account level. Sales charges,
expenses and fees, which are determined A description of the policies and
by the product issuers, will vary and procedures that the Fund uses to
will lower the total return. determine how to vote proxies relating
to portfolio securities is available
ABOUT INDEXES USED IN THIS REPORT without charge, upon request, by calling
800-959-4246, or on the AIM Web site,
The unmanaged Lipper Large-Cap Growth AIMinvestments.com.
Fund Index represents an average of the
performance of the 30 largest ========================================
large-capitalization growth funds PORTFOLIO MANAGEMENT TEAM
tracked by Lipper, Inc., an independent AS OF 12/31/03
mutual fund performance monitor. GABE BIRDSALL
MONIKA H. DEGAN
The unmanaged Russell 1000 Growth LANNY H. SACHNOWITZ, LEAD MANAGER
Index is a subset of the unmanaged ASSISTED BY THE LARGE CAP GROWTH TEAM
Russell 1000 Index, which represents the ========================================
performance of the stocks of
large-capitalization companies. The
Growth subset measures the performance
VIGRO-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.84%
ADVERTISING-0.90%
Omnicom Group Inc. 41,500 $ 3,624,195
=======================================================================
APPAREL RETAIL-1.73%
Gap, Inc. (The) 300,000 6,963,000
=======================================================================
APPLICATION SOFTWARE-0.60%
PeopleSoft, Inc.(a) 105,000 2,394,000
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.91%
Franklin Resources, Inc. 70,000 3,644,200
=======================================================================
BIOTECHNOLOGY-2.89%
Amgen Inc.(a) 72,500 4,480,500
- -----------------------------------------------------------------------
Genentech, Inc.(a) 76,500 7,158,105
=======================================================================
11,638,605
=======================================================================
BREWERS-0.54%
Anheuser-Busch Cos., Inc. 41,500 2,186,220
=======================================================================
CASINOS & GAMING-0.75%
International Game Technology 85,000 3,034,500
=======================================================================
COMMUNICATIONS EQUIPMENT-6.66%
Cisco Systems, Inc.(a) 555,000 13,480,950
- -----------------------------------------------------------------------
Corning Inc.(a) 270,000 2,816,100
- -----------------------------------------------------------------------
Juniper Networks, Inc.(a) 185,000 3,455,800
- -----------------------------------------------------------------------
Motorola, Inc. 290,000 4,080,300
- -----------------------------------------------------------------------
Nortel Networks Corp. (Canada)(a) 700,000 2,961,000
=======================================================================
26,794,150
=======================================================================
COMPUTER & ELECTRONICS RETAIL-1.58%
Best Buy Co., Inc. 121,500 6,347,160
=======================================================================
COMPUTER HARDWARE-2.36%
Dell Inc.(a) 185,000 6,282,600
- -----------------------------------------------------------------------
International Business Machines Corp. 34,500 3,197,460
=======================================================================
9,480,060
=======================================================================
COMPUTER STORAGE & PERIPHERALS-1.54%
EMC Corp.(a) 480,000 6,201,600
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.70%
Deere & Co. 43,500 2,829,675
=======================================================================
CONSUMER FINANCE-2.97%
American Express Co. 105,000 5,064,150
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
MBNA Corp. 160,000 $ 3,976,000
- -----------------------------------------------------------------------
SLM Corp. 77,500 2,920,200
=======================================================================
11,960,350
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.74%
Affiliated Computer Services, Inc.-Class A(a) 40,000 2,178,400
- -----------------------------------------------------------------------
First Data Corp. 80,000 3,287,200
- -----------------------------------------------------------------------
Fiserv, Inc.(a) 75,000 2,963,250
- -----------------------------------------------------------------------
Paychex, Inc. 70,000 2,604,000
=======================================================================
11,032,850
=======================================================================
DEPARTMENT STORES-0.56%
Kohl's Corp.(a) 50,000 2,247,000
=======================================================================
DIVERSIFIED BANKS-0.78%
Wachovia Corp. 67,500 3,144,825
=======================================================================
DIVERSIFIED CAPITAL MARKETS-1.10%
J.P. Morgan Chase & Co. 120,000 4,407,600
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.35%
Apollo Group, Inc.-Class A(a) 43,500 2,958,000
- -----------------------------------------------------------------------
Cendant Corp.(a) 310,000 6,903,700
- -----------------------------------------------------------------------
H&R Block, Inc. 65,000 3,599,050
=======================================================================
13,460,750
=======================================================================
DRUG RETAIL-0.64%
CVS Corp. 71,500 2,582,580
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.28%
Agilent Technologies, Inc.(a) 175,500 5,131,620
=======================================================================
ENVIRONMENTAL SERVICES-0.37%
Waste Management, Inc. 50,000 1,480,000
=======================================================================
FOOTWEAR-0.81%
NIKE, Inc.-Class B 47,500 3,251,850
=======================================================================
GENERAL MERCHANDISE STORES-1.07%
Family Dollar Stores, Inc. 47,500 1,704,300
- -----------------------------------------------------------------------
Target Corp. 68,000 2,611,200
=======================================================================
4,315,500
=======================================================================
HEALTH CARE EQUIPMENT-4.86%
Boston Scientific Corp.(a) 340,000 12,498,400
- -----------------------------------------------------------------------
Guidant Corp. 70,500 4,244,100
- -----------------------------------------------------------------------
</Table>
AIM V.I. GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Zimmer Holdings, Inc.(a) 40,000 $ 2,816,000
=======================================================================
19,558,500
=======================================================================
HEALTH CARE SERVICES-0.87%
Caremark Rx, Inc.(a) 137,500 3,482,875
=======================================================================
HEALTH CARE SUPPLIES-0.75%
Alcon, Inc. (Switzerland) 50,000 3,027,000
=======================================================================
HOME ENTERTAINMENT SOFTWARE-1.01%
Electronic Arts Inc.(a) 85,000 4,061,300
=======================================================================
HOME IMPROVEMENT RETAIL-1.54%
Home Depot, Inc. (The) 175,000 6,210,750
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.63%
Starwood Hotels & Resorts Worldwide, Inc. 70,500 2,535,885
=======================================================================
HOUSEHOLD PRODUCTS-1.55%
Procter & Gamble Co. (The) 62,500 6,242,500
=======================================================================
INDUSTRIAL CONGLOMERATES-3.19%
Tyco International Ltd. (Bermuda) 485,000 12,852,500
=======================================================================
INDUSTRIAL MACHINERY-2.00%
Danaher Corp. 42,500 3,899,375
- -----------------------------------------------------------------------
Dover Corp. 57,500 2,285,625
- -----------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 27,500 1,866,700
=======================================================================
8,051,700
=======================================================================
INTERNET RETAIL-2.67%
Amazon.com, Inc.(a) 142,500 7,501,200
- -----------------------------------------------------------------------
eBay Inc.(a) 50,000 3,229,500
=======================================================================
10,730,700
=======================================================================
INTERNET SOFTWARE & SERVICES-1.72%
Yahoo! Inc.(a) 153,500 6,933,595
=======================================================================
INVESTMENT BANKING & BROKERAGE-5.09%
Charles Schwab Corp. (The) 277,500 3,285,600
- -----------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 70,000 6,911,100
- -----------------------------------------------------------------------
Lehman Brothers Holdings Inc. 80,000 6,177,600
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 70,000 4,105,500
=======================================================================
20,479,800
=======================================================================
IT CONSULTING & OTHER SERVICES-1.13%
Accenture Ltd.-Class A (Bermuda)(a) 172,500 4,540,200
=======================================================================
MANAGED HEALTH CARE-1.74%
Aetna Inc. 35,000 2,365,300
- -----------------------------------------------------------------------
UnitedHealth Group Inc. 80,000 4,654,400
=======================================================================
7,019,700
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.45%
Viacom Inc.-Class B 57,500 $ 2,551,850
- -----------------------------------------------------------------------
Walt Disney Co. (The) 140,000 3,266,200
=======================================================================
5,818,050
=======================================================================
MULTI-LINE INSURANCE-1.00%
American International Group, Inc. 60,500 4,009,940
=======================================================================
OIL & GAS DRILLING-0.78%
ENSCO International Inc. 55,000 1,494,350
- -----------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 40,000 1,660,000
=======================================================================
3,154,350
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-0.34%
Schlumberger Ltd. (Netherlands) 25,000 1,368,000
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.41%
Citigroup Inc. 200,000 9,708,000
=======================================================================
PHARMACEUTICALS-5.35%
Johnson & Johnson 60,000 3,099,600
- -----------------------------------------------------------------------
Lilly (Eli) & Co. 57,500 4,043,975
- -----------------------------------------------------------------------
Pfizer Inc. 175,000 6,182,750
- -----------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 70,000 3,969,700
- -----------------------------------------------------------------------
Wyeth 100,000 4,245,000
=======================================================================
21,541,025
=======================================================================
SEMICONDUCTOR EQUIPMENT-2.59%
Applied Materials, Inc.(a) 75,000 1,683,750
- -----------------------------------------------------------------------
Novellus Systems, Inc.(a) 207,500 8,725,375
=======================================================================
10,409,125
=======================================================================
SEMICONDUCTORS-8.23%
Analog Devices, Inc. 160,000 7,304,000
- -----------------------------------------------------------------------
Intel Corp. 192,500 6,198,500
- -----------------------------------------------------------------------
Linear Technology Corp. 50,000 2,103,500
- -----------------------------------------------------------------------
Maxim Integrated Products, Inc. 80,000 3,984,000
- -----------------------------------------------------------------------
Microchip Technology Inc. 136,500 4,553,640
- -----------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan)(a) 265,000 2,713,600
- -----------------------------------------------------------------------
Texas Instruments Inc. 212,500 6,243,250
=======================================================================
33,100,490
=======================================================================
SOFT DRINKS-0.70%
PepsiCo, Inc. 60,000 2,797,200
=======================================================================
SPECIALTY CHEMICALS-0.39%
Ecolab Inc. 57,500 1,573,775
=======================================================================
SPECIALTY STORES-2.01%
Bed Bath & Beyond Inc.(a) 67,500 2,926,125
- -----------------------------------------------------------------------
</Table>
AIM V.I. GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Staples, Inc.(a) 85,000 $ 2,320,500
- -----------------------------------------------------------------------
Tiffany & Co. 62,500 2,825,000
=======================================================================
8,071,625
=======================================================================
SYSTEMS SOFTWARE-7.01%
Computer Associates International, Inc. 227,500 6,219,850
- -----------------------------------------------------------------------
Microsoft Corp. 430,000 11,842,200
- -----------------------------------------------------------------------
Oracle Corp.(a) 205,000 2,706,000
- -----------------------------------------------------------------------
VERITAS Software Corp.(a) 200,000 7,432,000
=======================================================================
28,200,050
=======================================================================
Total Common Stocks & Other Equity Interests
(Cost $301,114,006) 393,630,925
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-2.18%
Liquid Assets Portfolio(b) 4,393,449 $ 4,393,449
- -----------------------------------------------------------------------
STIC Prime Portfolio(b) 4,393,449 4,393,449
=======================================================================
Total Money Market Funds (Cost $8,786,898) 8,786,898
=======================================================================
TOTAL INVESTMENTS-100.02% (Cost $309,900,904) 402,417,823
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.02%) (81,512)
=======================================================================
NET ASSETS-100.00% $402,336,311
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$301,114,006) $393,630,925
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $8,786,898) 8,786,898
- -------------------------------------------------------------
Foreign currencies, at value (cost $123) 141
- -------------------------------------------------------------
Receivables for:
Fund shares sold 120,998
- -------------------------------------------------------------
Dividends 244,191
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 57,978
- -------------------------------------------------------------
Other assets 194
=============================================================
Total assets 402,841,325
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 148,464
- -------------------------------------------------------------
Deferred compensation and retirement plans 75,057
- -------------------------------------------------------------
Accrued administrative services fees 204,971
- -------------------------------------------------------------
Accrued distribution fees -- Series II 5,407
- -------------------------------------------------------------
Accrued transfer agent fees 2,303
- -------------------------------------------------------------
Accrued operating expenses 68,812
=============================================================
Total liabilities 505,014
=============================================================
Net assets applicable to shares outstanding $402,336,311
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $775,737,984
- -------------------------------------------------------------
Undistributed net investment income (loss) (71,307)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (465,847,301)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 92,516,935
=============================================================
$402,336,311
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $392,532,993
_____________________________________________________________
=============================================================
Series II $ 9,803,318
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 26,476,527
_____________________________________________________________
=============================================================
Series II 664,613
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 14.83
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 14.75
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$11,440) $ 2,697,002
- -------------------------------------------------------------
Dividends from affiliated money market funds 76,573
- -------------------------------------------------------------
Total investment income 2,773,575
=============================================================
EXPENSES:
Advisory fees 2,302,831
- -------------------------------------------------------------
Administrative services fees 813,705
- -------------------------------------------------------------
Custodian fees 46,410
- -------------------------------------------------------------
Distribution fees -- Series II 13,372
- -------------------------------------------------------------
Transfer agent fees 27,491
- -------------------------------------------------------------
Trustees' fees 13,554
- -------------------------------------------------------------
Other 43,605
=============================================================
Total expenses 3,260,968
=============================================================
Less: Fees waived and expense offset
arrangements (1,281)
=============================================================
Net expenses 3,259,687
=============================================================
Net investment income (loss) (486,112)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (3,934,928)
- -------------------------------------------------------------
Foreign currencies 382
- -------------------------------------------------------------
Option contracts written (264,225)
=============================================================
(4,198,771)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 102,237,180
- -------------------------------------------------------------
Foreign currencies (207)
- -------------------------------------------------------------
Option contracts written (22,373)
=============================================================
102,214,600
=============================================================
Net gain from investment securities, foreign
currencies and option contracts 98,015,829
=============================================================
Net increase in net assets resulting from
operations $ 97,529,717
_____________________________________________________________
=============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (486,112) $ (977,149)
- -------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts (4,198,771) (110,232,784)
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts 102,214,600 (72,796,739)
===========================================================================================
Net increase (decrease) in net assets resulting from
operations 97,529,717 (184,006,672)
===========================================================================================
Share transactions-net:
Series I (64,742,379) (56,986,625)
- -------------------------------------------------------------------------------------------
Series II 5,557,072 2,733,286
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (59,185,307) (54,253,339)
===========================================================================================
Net increase (decrease) in net assets 38,344,410 (238,260,011)
===========================================================================================
NET ASSETS:
Beginning of year 363,991,901 602,251,912
===========================================================================================
End of year (including undistributed net investment income
(loss) of $(71,307) and $(65,948) for 2003 and 2002,
respectively) $402,336,311 $ 363,991,901
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. 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
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. 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.
The Fund's investment objective is to seek growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. GROWTH FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, 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.
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.
I. 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.
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 AIM at the annual rate of 0.65% of the first
$250 million of the Fund's average daily net assets, plus 0.60% of the Fund's
average daily net assets in excess of $250 million. Further, AIM has voluntarily
agreed to waive fees of Series I and Series II shares to the extent necessary to
limit the expenses (excluding Rule 12b-1 plan fees, if any, interest, taxes,
fund merger and reorganization expenses, extraordinary items, including other
items designated as such by the Board of Trustees and increases in expenses due
to expense offset arrangements, if any) of each Series to 1.30%. Voluntary
expense limitations may be modified or discontinued at any time without further
notice to investors. AIM has voluntarily agreed to waive advisory fees of the
Fund in the amount of 25% of the advisory fee AIM receives from affiliated money
market funds on investments by the Fund in such affiliated money market funds.
For the year ended December 31, 2003, AIM waived fees of $1,211.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $813,705 of which AIM
retained $93,483 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $30,300 for
such services.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
AIM V.I. GROWTH FUND
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $13,372.
Certain officers and trustees of the Trust are officers 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $2,006,606 $100,422,677 $ 98,035,834 $ -- $4,393,449 $38,742
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 2,006,606 100,422,667 98,035,834 -- 4,393,449 37,831
===================================================================================================================================
$4,013,212 $200,845,354 $196,071,668 $ -- $8,786,898 $76,573
___________________________________________________________________________________________________________________________________
===================================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -----------------------------------------
Liquid Assets Portfolio $ --
- -----------------------------------------
STIC Prime Portfolio --
=========================================
$ --
_________________________________________
=========================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$3 and reductions in custodian fees of $67 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $70.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $4,570
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
AIM V.I. GROWTH FUND
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------
Beginning of year 250 $ 66,748
- -------------------------------------------------------------
Written 11,213 1,842,330
- -------------------------------------------------------------
Closed (8,863) (1,551,780)
- -------------------------------------------------------------
Exercised (2,600) (357,298)
=============================================================
End of year -- $ --
_____________________________________________________________
=============================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distribution paid during
the years ended December 31, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 84,983,653
- -------------------------------------------------------------
Temporary book/tax differences (71,307)
- -------------------------------------------------------------
Capital loss carryforward (458,314,019)
- -------------------------------------------------------------
Shares of beneficial interest 775,737,984
=============================================================
Total net assets $ 402,336,311
_____________________________________________________________
=============================================================
</Table>
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 to the tax deferral of losses on wash
sales and straddle transactions. The tax-basis unrealized appreciation amount
includes appreciation on foreign currencies of $17.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2008 $ 4,002,102
- -----------------------------------------------------------
December 31, 2009 325,071,012
- -----------------------------------------------------------
December 31, 2010 103,227,233
- -----------------------------------------------------------
December 31, 2011 26,013,672
===========================================================
Total capital loss carryforward $458,314,019
___________________________________________________________
===========================================================
</Table>
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, 2003 was $359,166,185 and $423,786,330, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $88,603,391
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,619,755)
============================================================
Net unrealized appreciation of investment
securities $84,983,636
============================================================
Cost of investments for tax purposes is
$317,434,187.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses
and foreign currency transactions, on December 31, 2003, undistributed net
investment income (loss) was increased by $480,753, undistributed net realized
gains (losses) decreased by $382 and shares of beneficial interest decreased by
$480,371. This reclassification had no effect on the net assets of the Fund.
AIM V.I. GROWTH FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
Sold:
Series I 5,011,173 $ 64,150,735 7,814,827 $ 106,412,883
- --------------------------------------------------------------------------------------------------------------------------
Series II 572,562 7,394,324 533,384 6,154,426
==========================================================================================================================
Reacquired:
Series I (10,506,555) (128,893,114) (12,601,423) (163,399,508)
- --------------------------------------------------------------------------------------------------------------------------
Series II (150,413) (1,837,252) (327,826) (3,421,140)
==========================================================================================================================
(5,073,233) $ (59,185,307) (4,581,038) $ (54,253,339)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.30 $ 16.37 $ 24.81 $ 32.25 $ 24.80
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.03)(a) (0.03)(a) 0.03 0.01(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.55 (5.04) (8.37) (6.60) 8.63
===============================================================================================================================
Total from investment operations 3.53 (5.07) (8.40) (6.57) 8.64
===============================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.04) (0.00) (0.06)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.87) (1.13)
===============================================================================================================================
Total distributions -- -- (0.04) (0.87) (1.19)
===============================================================================================================================
Net asset value, end of period $ 14.83 $ 11.30 $ 16.37 $ 24.81 $ 32.25
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 31.24% (30.97)% (33.86)% (20.49)% 35.24%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $392,533 $361,259 $601,648 $879,182 $704,096
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 0.89%(c) 0.91% 0.88% 0.83% 0.73%
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.13)%(c) (0.21)% (0.17)% 0.11% 0.04%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 101% 195% 239% 162% 101%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges at the separate account level which if included would reduce
total returns for all periods shown.
(c) Ratios are based on average daily net assets of $357,623,079.
AIM V.I. GROWTH FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------------
SEPTEMBER 19, 2001
YEAR ENDED (DATE SALES COMMENCED)
DECEMBER 31, TO DECEMBER
2002 2001
-------------------- ----------------------
Net asset value, beginning of period $11.27 $ 16.36 $14.67
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.06)(a) (0.02)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.51 (5.03) 1.75
==============================================================================================================
Total from investment operations 3.48 (5.09) 1.73
==============================================================================================================
Less dividends from net investment income -- -- (0.04)
==============================================================================================================
Net asset value, end of period $14.75 $ 11.27 $16.36
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 30.88% (31.11)% 11.79%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,803 $ 2,733 $ 604
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets 1.14%(c) 1.16% 1.17%(d)
==============================================================================================================
Ratio of net investment income (loss) to average net assets (0.38)%(c) (0.46)% (0.46)%(d)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate(e) 101% 195% 239%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $5,348,688.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. GROWTH FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
NOTE 14--SIGNIFICANT EVENTS
On December 9, 2003 the Board of Trustees approved an Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Fund would acquire all of the
assets of INVESCO VIF-Growth Fund ("Selling Fund"), a series of INVESCO Variable
Investment Funds, Inc. As a result of the Plan, shareholders of the Selling Fund
would receive shares of the Fund in exchange for their shares of the Selling
Fund, and the Selling Fund would cease operations.
The Plan requires approval of the Selling Fund's shareholders and will be
submitted to the shareholders for their consideration at a special meeting to be
held on March 26, 2004. If the Plan is approved by shareholders of the Selling
Fund and certain conditions required by the Plan are satisfied, the transaction
is expected to become effective on or about April 30, 2004.
AIM V.I. GROWTH FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Growth Fund, a series of shares of beneficial interest of AIM Variable Insurance
Funds, including the schedule of investments as of December 31, 2003, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the years or periods in the five year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Growth Fund as of December 31, 2003, 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 years or periods
in the five year period then ended in conformity with accounting principles
generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. GROWTH FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and Fund Management
Company (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. and
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
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance investment company);
Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Group, Administaff, Discovery
Trustee Inc. (government affairs company) and Texana Timber Global Education Fund
LP (sustainable forestry company) (non-profit)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. GROWTH FUND
TRUSTEES AND OFFICERS (continued)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations None
Trustee Hines Interests Limited Partnership (real estate
development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General Counsel,
Liberty Financial Companies, Inc.; and Senior Vice
President and General Counsel, Liberty Funds Group,
LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and President, N/A
Vice President Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
AIM V.I. GROWTH FUND
AIM V.I. HIGH YIELD FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. HIGH YIELD FUND seeks to provide a high level of current income
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. HIGH YIELD FUND
FUND POSTS DOUBLE-DIGIT RETURNS lower-rated bonds with higher yields and
AMID REBOUND IN HIGH YIELD MARKET the potential for higher income and
capital appreciation. During the fiscal
For the fiscal year ended December 31, Amid the year's low interest-rate year, we added to the fund's CCC-rated
2003, AIM V.I. High Yield Fund Series I environment, high yield bonds provided bond weighting, while decreasing our
and Series II shares returned 28.04% and investors with yields most high--quality, weighting in BB-rated bonds.
27.89%, respectively. In comparison, the investment-grade bonds could not match.
fund's broad market index, the Lehman Indeed, at the start of 2003, yield On a sector basis, we increased our
U.S. Aggregate Bond Index, returned spreads-the difference between yields on exposure to utilities. In 2002, the
4.10%; the fund's style-specific index, high yield bonds and comparable maturity utility sector was battered by
the Lehman High Yield Index, returned Treasuries--stood at more than 800 basis over-supply of electric generating
28.97%; and the fund's peer-group index, points (100 basis points equals 1%). As capacity and near-term debt maturities.
the Lipper High Yield Bond Fund Index, the perceived risk of high yield bonds The sector staged a comeback in 2003,
returned 26.36%. The fund's focus on declined during the year, however, the however, becoming one of the highest
high yield bonds helped it outperform extra yield or spread that investors returning sectors in the high yield
its broad market index during the year, demand to own below investment-grade market for the year. Our investments in
as the Lehman Aggregate is composed of bonds narrowed to approximately 400 Mission Energy Holding, Calpine, Dynegy
investment-grade bonds which basis points by year end. and Williams Cos. added significantly to
underperformed high yield bonds during fund performance during the fiscal year.
the reporting period. On a return basis, all credit-quality
categories within the high yield market Wireless and wireline
MARKET CONDITIONS posted double-digit returns for the telecommunications and cable sectors
fiscal year. However, lower-rated also proved beneficial to the fund. In
After a few challenging years, high tiers--such as CCC-rated bonds--provided particular, our decision to remain with
yield bonds reversed course in 2003, the highest returns, while BB-rated investments in distressed cable
outperforming most fixed-income bonds--the highest quality bonds, in the companies such as Adelphia
investments during the fiscal year. As high yield market--posted the lowest Communications, Knology, and Charter
noted above, high yield bonds outpaced returns. Communications, paid off as the cable
their investment-grade counterparts by a industry rebounded in 2003, and these
wide margin in 2003. YOUR FUND investments contributed to performance
during the reporting period.
For the first five months of the During the fiscal year, we made some
year, the Federal Reserve (the Fed) kept changes to the portfolio so we could be Investments in lower risk assets in
the short-term federal funds rate at more responsive to the improving high health care, gaming and energy--while
1.25%. On June 25, 2003, it reduced that yield market environment. Primarily, we helping to stabilize the fund's overall
rate to 1.00%, its lowest level since added more risk to the portfolio. While risk profile--proved a drag on fund
1958, where it remained for the rest of the fund's average credit quality performance. Lower risk investments
the year. remained B, we increased our exposure to generally witnessed lower relative
declines in yields and therefore milder
capital appreciation.
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 ISSUERS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Qwest Cap Funding, Inc. 2.5% 1. Broadcasting & Cable TV 12.4% Total returns 12/31/02-12/31/03,
2. Charter Communications Holdings, 2. Multi-Utilities 7.2 excluding product issuer charges
LLC/Charter Communications 3. Wireless Telecommunication Services 6.3
Holdings Capital Corp. 2.1 4. Hotels, Resorts & Cruise Lines 4.0 SERIES I SHARES 28.04%
3. CSC Holdings, Inc. 1.7 5. Integrated Telecommunication Services 3.4 SERIES II SHARES 27.89
4. Adelphia Communications Corp. 1.6 6. Oil & Gas Refining & Marketing 3.2 LEHMAN U.S. AGGREGATE BOND INDEX 4.10
5. Calpine Corp. 1.4 7. Electric Utilities 3.1 (Broad Market Index)
6. PRIMEDIA Inc. 1.3 8. Metal & Glass Containers 3.1 LEHMAN HIGH YIELD INDEX 28.97
7. Dole Food Co., Inc. 1.3 9. Specialty Chemicals 3.0 (Style-Specific Index)
8. Williams Cos., Inc. (The) 1.3 10. Aerospace & Defense 2.9 LIPPER HIGH YIELD BOND FUND INDEX 26.36
9. Hexcel Corp. 1.1 (Peer Group Index)
10. United Rentals (North America), Source: Lipper, Inc.
Inc. 1.1 TOTAL NUMBER OF HOLDINGS* 274
TOTAL NET ASSETS $38.5 MILLION
====================================================================================================================================
</Table>
<Table>
========================================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
PETER EHRET, CO-MANAGER
CAROLYN L. GIBBS, CO-MANAGER
ASSISTED BY HIGH YIELD TAXABLE TEAM
========================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
AIM V.I. HIGH YIELD FUND
While it was a strong year for high RESULTS OF A $10,000 INVESTMENT
yield investments, a few fund holdings 5/1/98-12/31/03
detracted from performance such as Texas Index data from 4/30/98
Petrochemicals and Constar, a packing
company. Texas Petrochemicals proved a [LINE CHART]
drag on performance as the company was
overcome by overcapacity and declining
use of a major fuel additive product LEHMAN U.S. LIPPER HIGH AIM V.I.
that it manufactured. We sold our AGGREGATE LEHMAN HIGH YIELD BOND HIGH YIELD
position in Texas Petrochemicals during BOND INDEX YIELD INDEX FUND INDEX FUND-SERIES I
the year. Constar fell on intense
industry competition during the fiscal
year. 5/1/1998 10000 10000 10000 10000
12/31/1998 10647 9817 9542 9239
Despite repositioning the fund 6/30/1999 10501 10033 9911 9803
somewhat during the fiscal year, we want 12/31/1999 10559 10052 9999 10211
to assure shareholders our basic 6/30/2000 10980 9930 9807 9883
philosophy remains the same. Recognizing 12/31/2000 11787 9463 9028 8270
the possibility of a down draft in any 6/30/2001 12213 9834 9040 7933
particular industry or sector, we 12/31/2001 12782 9962 8934 7858
continue to diversify the portfolio amid 6/30/2002 13267 9480 8469 7311
a broad array of sectors and industries. 12/31/2002 14093 9822 8719 7400
At the same time, we believe a large 6/30/2003 14646 11638 10091 8584
cross section of holdings also helps 12/31/2003 14671 12668 11017 9473
limit issuer-specific risk.
IN CLOSING Source: Lipper, Inc.
Given disappointing market conditions in Past performance cannot guarantee comparable future results.
recent years, we are pleased to report a
rebound in the high yield market and to In evaluating this chart, please note that the chart uses a logarithmic scale
provide shareholders double-digit along the vertical axis (the value scale). This means that each scale increment
returns during the fiscal year. And we always represents the same percent change in price; in a linear chart each scale
want to assure shareholders that we increment always represents the same absolute change in price. In this example,
remain committed to meeting the fund's the scale increment between $5,000 and $10,000 is the same as that between
goal of achieving a high level of $10,000 and $20,000. In a linear chart, the latter scale increment would be
current income. 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
AVERAGE ANNUAL TOTAL RETURNS 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. AIM uses a
As of 12/31/03 logarithmic scale in financial reports of funds that have more than five years
of performance history.
SERIES I SHARES
Inception (5/1/98) -0.95% significant market volatility, results include risks relating to fluctuations
5 Years 0.50 of an investment made today may differ in the value of the U.S. dollar relative
1 Year 28.04 substantially from the historical to the values of other currencies, the
performance shown. Please see your custody arrangements made for the fund's
SERIES II SHARES** financial advisor for more current foreign holdings, differences in
Inception -1.18% performance. Fund performance figures accounting, political risks and the
5 Years 0.27 are historical, and they reflect fund lesser degree of public information
1 Year 27.89 expenses, the reinvestment of required to be provided by non-U.S.
distributions and changes in net asset companies.
value. The fund's investment return and
principal value will fluctuate, so an ABOUT INDEXES USED IN THIS REPORT
**Series II shares were first offered investor's shares, when redeemed, may be The unmanaged Lehman U.S. Aggregate Bond
3/26/02. Returns prior to that date are worth more or less than their original Index, which represents the U.S.
hypothetical results based on the cost. investment-grade fixed-rate bond market
performance of Series I shares from (including government and corporate
5/1/98, adjusted to reflect Series II AIM Variable Insurance Funds are securities, mortgage pass-through
12b-1 fees. The Series I and Series II offered through insurance company securities and asset-backed securities),
shares invest in the same portfolio of separate accounts to fund variable is compiled by Lehman Brothers, a global
securities and will have substantially annuity contracts and variable life investment bank.
similar performance, except to the insurance policies, and through certain
extent that expenses borne by each class pension or retirement plans. Performance The unmanaged Lipper High Yield Bond
differ. figures given represent the fund and are Fund Index represents an average of the
not intended to reflect actual variable 30 largest high-yield bond funds tracked
Current performance may be lower or product values. They do not reflect by Lipper, Inc., an independent mutual
higher than the performance data quoted. sales charges, expenses and fees at the fund performance monitor.
Past performance cannot guarantee separate account level. Sales charges,
comparable future results. Due to expenses and fees, which are determined The unmanaged Lehman High Yield
by the product issuers, will vary and Index, which represents the performance
will lower the total return. of high-yield debt securities, is
compiled by Lehman Brothers, a global
PRINCIPAL RISKS OF INVESTING IN THE FUND investment bank.
The fund invests in higher-yielding,
lower-rated corporate bonds, commonly A direct investment cannot be made in
known as junk bonds, which have a an index. Unless otherwise indicated,
greater risk of price fluctuation and index results include reinvested
loss of principal and income than do dividends, and they do not reflect sales
U.S. government securities such as U.S. charges. Performance of an index of
Treasury bills, notes and bonds, for funds reflects fund expenses;
which principal and any applicable performance of a market index does not.
interest are guaranteed by the
government if held to maturity. Industry classifications used in this
report are generally according to the
The average credit quality of the fund's Global Industry Classification Standard,
holdings as of the close of the which was developed by and is the
reporting period represents the weighted exclusive property and a service mark of
average quality rating of the securities Morgan Stanley Capital International
in the portfolio as assigned by Inc. and Standard & Poor's.
Nationally Recognized Statistical Rating
Organizations based on assessment of the A description of the policies and
credit quality of the individual procedures that the Fund uses to
securities. determine how to vote proxies relating
to portfolio securities is available
International investing presents without charge, upon request, by calling
certain risks not associated with 800-959-4246, or on the AIM Web site,
investing solely in the United States. AIMinvestments.com.
These
VIHYI-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
BONDS & NOTES-93.47%
AEROSPACE & DEFENSE-2.86%
Armor Holdings, Inc., Sr. Sub. Notes, 8.25%,
08/15/13 (Acquired 08/06/03; Cost
$49,168)(a) $ 50,000 $ 53,750
- ----------------------------------------------------------------------
BE Aerospace, Inc., Sr. Unsec. Notes, 8.50%,
10/01/10 (Acquired 10/02/03; Cost
$275,000)(a) 275,000 294,937
- ----------------------------------------------------------------------
DRS Technologies, Inc., Sr. Sub. Notes,
6.88%, 11/01/13 (Acquired 10/16/03; Cost
$55,000)(a) 55,000 56,650
- ----------------------------------------------------------------------
Hexcel Corp., Sr. Unsec. Sub. Notes, 9.75%,
01/15/09 415,000 436,787
- ----------------------------------------------------------------------
L-3 Communications Corp., Sr. Sub. Notes,
6.13%, 01/15/14 (Acquired 12/16/03; Cost
$166,867)(a)(b) 170,000 171,275
- ----------------------------------------------------------------------
Orbital Sciences Corp.-Series B, Sr. Global
Notes, 9.00%, 07/15/11 80,000 86,400
======================================================================
1,099,799
======================================================================
AIRLINES-2.30%
Continental Airlines, Inc., Notes, 8.00%,
12/15/05 130,000 127,075
- ----------------------------------------------------------------------
Delta Air Lines, Inc.,
Series C, Medium Term Notes, 6.65%,
03/15/04 60,000 60,450
- ----------------------------------------------------------------------
Unsec. Notes, 7.90%, 12/15/09 405,000 334,125
- ----------------------------------------------------------------------
Northwest Airlines Inc.,
Sr. Unsec. Gtd. Notes, 8.88%, 06/01/06 105,000 96,075
- ----------------------------------------------------------------------
Unsec. Gtd. Unsub. Notes, 8.52%, 04/07/04 265,000 267,319
======================================================================
885,044
======================================================================
APPAREL RETAIL-0.32%
Mothers Work, Inc., Sr. Unsec. Gtd. Notes,
11.25%, 08/01/10 110,000 121,550
======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.38%
Warnaco Inc., Sr. Notes, 8.88%, 06/15/13
(Acquired 06/05/03-07/07/03; Cost
$86,000)(a) 85,000 87,975
- ----------------------------------------------------------------------
William Carter Co. (The)-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 10.88%, 08/15/11 52,000 59,930
======================================================================
147,905
======================================================================
AUTO PARTS & EQUIPMENT-1.59%
Collins & Aikman Products Co., Sr. Unsec.
Gtd. Global Notes, 10.75%, 12/31/11 25,000 24,687
- ----------------------------------------------------------------------
Dura Operating Corp.,
Series B, Sr. Unsec. Gtd. Global Notes,
8.63%, 04/15/12 10,000 10,600
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
AUTO PARTS & EQUIPMENT-(CONTINUED)
Sr. Notes, 8.63%, 04/15/12 (Acquired
10/29/03; Cost $45,000)(a) $ 45,000 $ 47,700
- ----------------------------------------------------------------------
Keystone Automotive Operations Inc., Sr. Sub.
Notes, 9.75%, 11/01/13 (Acquired 10/23/03;
Cost $150,000)(a)(b) 150,000 162,750
- ----------------------------------------------------------------------
Metaldyne Corp., Sr. Unsec. Gtd. Notes,
10.00%, 11/01/13 (Acquired 10/20/03; Cost
$70,000)(a) 70,000 71,050
- ----------------------------------------------------------------------
Tenneco Automotive Inc.,
Series B, Sr. Sec. Second Lien Global
Notes, 10.25%, 07/15/13 80,000 91,400
- ----------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Sub. Notes,
11.63%, 10/15/09 102,000 110,670
- ----------------------------------------------------------------------
TRW Automotive Inc., Sr. Global Notes, 9.38%,
02/15/13 80,000 91,800
======================================================================
610,657
======================================================================
BROADCASTING & CABLE TV-10.21%
Adelphia Communications Corp.,
Series B, Sr. Unsec. Notes, 9.88%,
03/01/07(c) 140,000 126,350
- ----------------------------------------------------------------------
Sr. Unsec. Notes, 10.88%, 10/01/10(c) 530,000 475,675
- ----------------------------------------------------------------------
Allbritton Communications Co., Sr. Unsec.
Sub. Global Notes, 7.75%, 12/15/12 55,000 57,062
- ----------------------------------------------------------------------
Avalon Cable LLC, Sr. Notes, 11.88%, 12/01/08 119,740 127,224
- ----------------------------------------------------------------------
Charter Communications Holdings, LLC/Charter
Communications Holdings Capital Corp.,
Sr. Sub. Notes, 8.75%, 11/15/13 (Acquired
11/04/03; Cost $45,000)(a) 45,000 46,012
- ----------------------------------------------------------------------
Sr. Unsec. Sub. Disc. Notes, 9.92%,
04/01/11(d) 315,000 270,900
- ----------------------------------------------------------------------
Sr. Unsec. Sub. Global Notes, 11.13%,
01/15/11 535,000 492,200
- ----------------------------------------------------------------------
Comcast UK Cable Partners Ltd. (Bermuda), Sr.
Unsec. Yankee Deb., 11.20%, 11/15/07 410,000 412,050
- ----------------------------------------------------------------------
DIRECTV Holdings LLC/ DIRECTV Financing Co.,
Inc., Sr. Unsec. Gtd. Global Notes, 8.38%,
03/15/13 140,000 163,100
- ----------------------------------------------------------------------
Granite Broadcasting Corp.,
Sr. Sec. Notes, 9.75%, 12/01/10 (Acquired
12/08/03-12/12/03; Cost $113,641)(a)(b) 115,000 114,712
- ----------------------------------------------------------------------
Sr. Sub. Notes, 10.38%, 05/15/05 45,000 45,450
- ----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 9.38%, 12/01/05 70,000 70,000
- ----------------------------------------------------------------------
Interep National Radio Sales, Inc.-Series B,
Sr. Unsec. Gtd. Sub. Notes, 10.00%,
07/01/08 20,000 18,100
- ----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
Knology, Inc., Sr. Unsec. PIK Notes, 13.00%,
11/30/09 (Acquired 04/26/00-11/14/03; Cost
$176,200)(a) $108,664 $ 108,392
- ----------------------------------------------------------------------
Mediacom Broadband LLC, Sr. Unsec. Gtd.
Global Notes, 11.00%, 07/15/13 175,000 196,875
- ----------------------------------------------------------------------
Nextmedia Operating Inc., Sr. Unsec. Gtd.
Sub. Notes, 10.75%, 07/01/11 45,000 51,075
- ----------------------------------------------------------------------
Pegasus Communications Corp.-Series B, Sr.
Notes, 9.63%, 10/15/05 435,000 402,375
- ----------------------------------------------------------------------
Salem Communications Holding Corp.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 9.00%,
07/01/11 190,000 206,625
- ----------------------------------------------------------------------
Spanish Broadcasting System, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 9.63%, 11/01/09 165,000 176,962
- ----------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Sec. Global
Notes, 12.00%, 06/15/10 325,000 369,687
======================================================================
3,930,826
======================================================================
BUILDING PRODUCTS-0.49%
Building Materials Corp., Sr. Unsec. Gtd.
Notes, 8.00%, 12/01/08 140,000 138,600
- ----------------------------------------------------------------------
Nortek Holdings, Inc., Sr. Disc. Notes,
10.00%, 05/15/11 (Acquired 11/19/03; Cost
$47,494)(a)(d) 70,000 51,100
======================================================================
189,700
======================================================================
CASINOS & GAMING-0.72%
Herbst Gaming, Inc.-Series B, Sr. Sec. Global
Notes, 10.75%, 09/01/08 150,000 170,250
- ----------------------------------------------------------------------
Mohegan Tribal Gaming Authority, Sr. Unsec.
Gtd. Sub. Global Notes, 8.00%, 04/01/12 25,000 27,125
- ----------------------------------------------------------------------
Venetian Casino Resort, LLC, Sec. Gtd.
Mortgage Global Notes, 11.00%, 06/15/10 70,000 81,550
======================================================================
278,925
======================================================================
COMMODITY CHEMICALS-1.24%
Equistar Chemicals L.P./Equistar Funding
Corp., Sr. Unsec. Gtd. Global Notes,
10.13%, 09/01/08 260,000 287,300
- ----------------------------------------------------------------------
ISP Chemco Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 10.25%, 07/01/11 115,000 129,662
- ----------------------------------------------------------------------
Methanex Corp. (Canada), Sr. Unsec. Notes,
8.75%, 08/15/12 55,000 61,187
======================================================================
478,149
======================================================================
COMMUNICATIONS EQUIPMENT-1.23%
Corning Inc., Unsec. Deb., 6.75%, 09/15/13 55,000 55,962
- ----------------------------------------------------------------------
Filtronic PLC (United Kingdom), Sr. Unsec.
Yankee Notes, 10.00%, 12/01/05 325,000 334,344
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Nortel Network Ltd. (Canada), Sr. Global
Notes, 6.13%, 02/15/06 $ 80,000 $ 81,600
======================================================================
471,906
======================================================================
CONSTRUCTION & ENGINEERING-0.29%
MasTec, Inc.-Series B, Sr. Sub. Notes, 7.75%,
02/01/08 75,000 76,500
- ----------------------------------------------------------------------
Schuff Steel Co., Sr. Unsec. Gtd. Notes,
10.50%, 06/01/08 55,000 33,275
======================================================================
109,775
======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.03%
Case New Holland Inc., Sr. Notes, 9.25%,
08/01/11 (Acquired 07/29/03-08/18/03; Cost
$98,997)(a) 100,000 112,500
- ----------------------------------------------------------------------
Terex Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 07/15/11 255,000 285,600
======================================================================
398,100
======================================================================
CONSUMER FINANCE-0.31%
Dollar Financial Group, Inc., Sr. Gtd. Notes,
9.75%, 11/15/11 (Acquired 11/07/03; Cost
$115,000)(a) 115,000 119,600
======================================================================
DEPARTMENT STORES-0.46%
JC Penney Co. Inc., Sr. Unsec. Notes, 8.00%,
03/01/10 155,000 177,862
======================================================================
DISTILLERS & VINTNERS-0.40%
Constellation Brands, Inc.-Series B, Sr.
Unsec. Gtd. Sub. Notes, 8.13%, 01/15/12 140,000 155,750
======================================================================
DIVERSIFIED CHEMICALS-0.21%
FMC Corp., Sr. Sec. Global Notes, 10.25%,
11/01/09 70,000 82,250
======================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.27%
United Rentals (North America), Inc.,
Series B, Sr. Unsec. Gtd. Global Notes,
10.75%, 04/15/08 150,000 169,500
- ----------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Notes, 10.75%,
04/15/08 70,000 79,100
- ----------------------------------------------------------------------
Sr. Sub. Notes, 7.75%, 11/15/13 (Acquired
10/28/03; Cost $170,000)(a) 170,000 175,950
- ----------------------------------------------------------------------
Wackenhut Corrections Corp., Sr. Unsec.
Global Notes, 8.25%, 07/15/13 60,000 64,200
======================================================================
488,750
======================================================================
DIVERSIFIED METALS & MINING-0.12%
Massey Energy Co., Sr. Notes, 6.63%, 11/15/10
(Acquired 11/05/03; Cost $45,000)(a) 45,000 46,575
======================================================================
DRUG RETAIL-1.09%
Rite Aid Corp.,
Sr. Global Notes, 9.25%, 06/01/13 315,000 347,287
- ----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
DRUG RETAIL-(CONTINUED)
Sr. Unsec. Unsub. Notes, 7.13%, 01/15/07 $ 70,000 $ 71,575
======================================================================
418,862
======================================================================
ELECTRIC UTILITIES-3.12%
CMS Energy Corp.,
Sr. Notes, 7.75%, 08/01/10 (Acquired
07/09/03; Cost $29,600)(a) 30,000 31,687
- ----------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.90%, 07/15/08 230,000 251,275
- ----------------------------------------------------------------------
Dynegy Holdings Inc.,
Sr. Sec. Gtd. Second Priority Notes,
10.13%, 07/15/13 (Acquired 08/01/03; Cost
$119,060)(a) 120,000 138,900
- ----------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 8.75%, 02/15/12 45,000 45,450
- ----------------------------------------------------------------------
Edison Mission Energy, Sr. Unsec. Global
Notes, 10.00%, 08/15/08 160,000 168,200
- ----------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.-
Series C, Sr. Sec. Bonds, 7.16%, 01/15/14 100,568 100,647
- ----------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08 200,000 197,750
- ----------------------------------------------------------------------
Orion Power Holdings, Inc., Sr. Unsec. Global
Notes, 12.00%, 05/01/10 65,000 80,275
- ----------------------------------------------------------------------
PG&E Corp., Sr. Sec. Notes, 6.88%, 07/15/08
(Acquired 06/27/03; Cost $175,000)(a) 175,000 189,359
======================================================================
1,203,543
======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.88%
General Cable Corp., Sr. Notes, 9.50%,
11/15/10 (Acquired 11/18/03; Cost
$20,000)(a) 20,000 21,450
- ----------------------------------------------------------------------
Midwest Generation LLC-Series B, Global
Asset-Backed Pass Through Ctfs., 8.56%,
01/02/16 230,000 240,925
- ----------------------------------------------------------------------
Thomas & Betts Corp., Sr. Unsec. Notes,
7.25%, 06/01/13 75,000 77,250
======================================================================
339,625
======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.37%
Sanmina-SCI Corp., Sr. Sec. Gtd. Global
Notes, 10.38%, 01/15/10 120,000 141,000
======================================================================
ENVIRONMENTAL SERVICES-0.69%
Allied Waste North America, Inc.-Series B,
Sr. Sec. Gtd. Sub. Global Notes, 8.50%,
12/01/08 240,000 267,600
======================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.47%
IMC Global Inc., Sr. Notes, 10.88%, 08/01/13
(Acquired 07/18/03-08/19/03; Cost
$161,632)(a) 165,000 181,500
======================================================================
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
FOOD DISTRIBUTORS-0.09%
Pinnacle Foods Holding Corp., Sr. Sub. Notes,
8.25%, 12/01/13 (Acquired 11/20/03; Cost
$35,000)(a) $ 35,000 $ 35,875
======================================================================
FOOD RETAIL-0.54%
Ahold Finance USA, Inc., Sr. Unsec. Gtd.
Unsub. Notes, 8.25%, 07/15/10 115,000 125,062
- ----------------------------------------------------------------------
Ahold Lease USA, Inc.-Series 2001, Class A-1,
Gtd. Asset-Backed Pass Through Cfts.,
7.82%, 01/02/20 80,387 81,593
======================================================================
206,655
======================================================================
FOREST PRODUCTS-0.09%
Millar Western Forest Products Ltd. (Canada),
Sr. Notes, 7.75%, 11/15/13 (Acquired
11/20/03; Cost $35,000)(a) 35,000 36,225
======================================================================
GAS UTILITIES-0.95%
SEMCO Energy, Inc.,
Sr. Global Notes, 7.75%, 05/15/13 45,000 47,187
- ----------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.13%, 05/15/08 75,000 78,094
- ----------------------------------------------------------------------
Southern Natural Gas Co., Sr. Unsec. Global
Notes, 8.88%, 03/15/10 35,000 39,506
- ----------------------------------------------------------------------
Suburban Propane Partners L.P./Suburban
Energy Finance Corp., Sr. Notes, 6.88%,
12/15/13 (Acquired 12/18/03; Cost
$200,000)(a)(b) 200,000 202,000
======================================================================
366,787
======================================================================
GENERAL MERCHANDISE STORES-0.57%
Pantry, Inc. (The), Sr. Unsec. Gtd. Sub.
Notes, 10.25%, 10/15/07 210,000 218,925
======================================================================
HEALTH CARE DISTRIBUTORS-0.67%
AmerisourceBergen Corp., Sr. Unsec. Gtd.
Global Notes, 7.25%, 11/15/12 210,000 226,800
- ----------------------------------------------------------------------
National Nephrology Associates, Inc., Sr.
Sub. Notes, 9.00%, 11/01/11 (Acquired
10/16/03; Cost $30,000)(a) 30,000 31,575
======================================================================
258,375
======================================================================
HEALTH CARE EQUIPMENT-1.18%
Medex, Inc., Sr. Sub. Notes, 8.88%, 05/15/13
(Acquired 05/14/03-06/26/03; Cost
$201,600)(a) 195,000 210,600
- ----------------------------------------------------------------------
MedQuest Inc.-Series B, Sr. Unsec. Gtd. Sub.
Notes, 11.88%, 08/15/12 70,000 77,175
- ----------------------------------------------------------------------
Vicar Operating, Inc., Sr. Unsec. Gtd. Notes,
9.88%, 12/01/09 150,000 166,500
======================================================================
454,275
======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
HEALTH CARE FACILITIES-1.65%
Ardent Health Services, LLC, Sr. Sub. Notes,
10.00%, 08/15/13 (Acquired 08/07/03; Cost
$50,000)(a) $ 50,000 $ 54,750
- ----------------------------------------------------------------------
Genesis HealthCare Corp., Sr. Sub. Notes,
8.00%, 10/15/13 (Acquired 10/23/03; Cost
$55,000)(a) 55,000 57,200
- ----------------------------------------------------------------------
Hanger Orthopedic Group, Inc., Sr. Unsec.
Gtd. Global Notes, 10.38%, 02/15/09 50,000 57,000
- ----------------------------------------------------------------------
Triad Hospitals, Inc., Sr. Sub. Notes, 7.00%,
11/15/13 (Acquired 11/06/03; Cost
$235,000)(a) 235,000 237,056
- ----------------------------------------------------------------------
United Surgical Partners International, Inc.,
Sr. Unsec. Gtd. Sub. Global Notes, 10.00%,
12/15/11 200,000 228,000
======================================================================
634,006
======================================================================
HEALTH CARE SERVICES-0.25%
Quintiles Transnational Corp., Sr. Sub.
Notes, 10.00%, 10/01/13 (Acquired 09/12/03;
Cost $90,000)(a) 90,000 97,650
======================================================================
HEALTH CARE SUPPLIES-1.18%
DJ Orthopedics LLC/DJ Orthopedics Capital
Corp., Sr. Unsec. Gtd. Sub. Notes, 12.63%,
06/15/09 165,000 184,387
- ----------------------------------------------------------------------
Fisher Scientific International Inc., Sr.
Unsec. Sub. Global Notes, 8.13%, 05/01/12 252,000 271,530
======================================================================
455,917
======================================================================
HOME FURNISHINGS-1.21%
Interface, Inc.-Series B, Sr. Unsec. Gtd.
Sub. Notes, 9.50%, 11/15/05 55,000 53,625
- ----------------------------------------------------------------------
Norcraft Cos., L.P./Norcraft Finance Corp.,
Sr. Sub. Notes, 9.00%, 11/01/11 (Acquired
10/10/03; Cost $150,000)(a)(b) 150,000 161,250
- ----------------------------------------------------------------------
Sealy Mattress Co.-Series B, Sr. Gtd. Sub.
Notes, 9.88%, 12/15/07 240,000 250,200
======================================================================
465,075
======================================================================
HOMEBUILDING-1.48%
Beazer Homes USA, Inc., Sr. Unsec. Gtd.
Global Notes, 8.38%, 04/15/12 180,000 199,350
- ----------------------------------------------------------------------
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10 125,000 135,625
- ----------------------------------------------------------------------
WCI Communities, Inc.,
Sr. Sub. Notes, 7.88%, 10/01/13 (Acquired
09/24/03; Cost $40,000)(a) 40,000 42,400
- ----------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes, 10.63%,
02/15/11 170,000 192,525
======================================================================
569,900
======================================================================
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
HOTELS, RESORTS & CRUISE LINES-3.98%
Gaylord Entertainment Co., Sr. Notes, 8.00%,
11/15/13 (Acquired 10/28/03; Cost
$25,000)(a) $ 25,000 $ 26,437
- ----------------------------------------------------------------------
Hilton Hotels Corp., Sr. Unsec. Notes, 7.63%,
12/01/12 100,000 112,500
- ----------------------------------------------------------------------
HMH Properties Inc.-Series B, Sr. Sec. Gtd.
Notes, 7.88%, 08/01/08 210,000 219,187
- ----------------------------------------------------------------------
Intrawest Corp. (Canada),
Sr. Notes, 7.50%, 10/15/13 (Acquired
10/01/03; Cost $80,000)(a) 80,000 83,200
- ----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.50%,
02/01/10 255,000 283,688
- ----------------------------------------------------------------------
Kerzner International Ltd. (Bahamas), Sr.
Unsec. Gtd. Sub. Global Notes, 8.88%,
08/15/11 150,000 164,250
- ----------------------------------------------------------------------
La Quinta Properties, Inc., Sr. Global Notes,
8.88%, 03/15/11 120,000 132,600
- ----------------------------------------------------------------------
Royal Caribbean Cruises Ltd. (Liberia),
Sr. Unsec. Notes, 8.00%, 05/15/10 70,000 76,650
- ----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 8.75%,
02/02/11 200,000 228,000
- ----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes, 7.88%, 05/01/12 185,000 208,125
======================================================================
1,534,637
======================================================================
HOUSEWARES & SPECIALTIES-0.58%
Jarden Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.75%, 05/01/12 200,000 221,500
======================================================================
INDUSTRIAL CONGLOMERATES-0.53%
TD Funding Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 8.38%, 07/15/11 40,000 42,600
- ----------------------------------------------------------------------
Tyco International Group S.A. (Luxembourg),
Series A, Sr. Unsec. Gtd. Conv. Putable
Notes, 2.75%, 01/15/08 (Acquired 01/07/03;
Cost $59,000)(a) 59,000 75,594
- ----------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Unsub. Conv.
Putable Deb., 3.13%, 01/15/15 (Acquired
01/07/03; Cost $64,000)(a) 64,000 87,840
======================================================================
206,034
======================================================================
INDUSTRIAL MACHINERY-1.60%
Cabot Safety Corp., Sr. Sub. Notes, 12.50%,
07/15/05 210,000 214,725
- ----------------------------------------------------------------------
Manitowoc Co., Inc. (The), Sr. Unsec. Gtd.
Sub. Global Notes, 10.50%, 08/01/12 135,000 153,225
- ----------------------------------------------------------------------
Wolverine Tube, Inc.,
Sr. Notes, 7.38%, 08/01/08 (Acquired
03/18/03-10/20/03; Cost $158,119)(a) 175,000 162,750
- ----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 10.50%,
04/01/09 85,000 87,125
======================================================================
617,825
======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
INTEGRATED OIL & GAS-1.57%
PDVSA Finance Ltd. (Cayman Islands), Global
Notes, 8.50%, 11/16/12 $410,000 $ 399,750
- ----------------------------------------------------------------------
Petrobras International Finance Co. (Cayman
Islands), Sr. Unsec. Unsub. Global Notes,
9.13%, 07/02/13 185,000 203,500
======================================================================
603,250
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.39%
LCI International, Inc., Sr. Notes, 7.25%,
06/15/07 125,000 123,125
- ----------------------------------------------------------------------
Madison River Capital LLC/Madison River
Finance Corp., Sr. Unsec. Notes, 13.25%,
03/01/10 150,000 165,000
- ----------------------------------------------------------------------
PTC International Finance II S.A.
(Luxembourg), Sr. Unsec. Gtd. Sub. Yankee
Notes, 11.25%, 12/01/09 55,000 60,500
- ----------------------------------------------------------------------
Qwest Capital Funding, Inc., Unsec. Gtd.
Global Notes,
7.00%, 08/03/09 345,000 343,275
- ----------------------------------------------------------------------
7.25%, 02/15/11 625,000 615,625
======================================================================
1,307,525
======================================================================
LEISURE FACILITIES-1.05%
Six Flags, Inc.,
Sr. Notes, 9.63%, 06/01/14 (Acquired
12/02/03-12/10/03; Cost $168,888)(a) 165,000 173,250
- ----------------------------------------------------------------------
Sr. Unsec. Notes, 9.75%, 06/15/07 140,000 147,525
- ----------------------------------------------------------------------
Universal City Development Partners, Sr.
Notes, 11.75%, 04/01/10 (Acquired 03/21/03;
Cost $69,184)(a) 70,000 82,600
======================================================================
403,375
======================================================================
LIFE & HEALTH INSURANCE-0.13%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $49,408)(a) 50,000 49,591
======================================================================
MARINE-0.45%
Overseas Shipholding Group, Inc., Sr. Unsec.
Global Notes, 8.25%, 03/15/13 125,000 134,219
- ----------------------------------------------------------------------
Stena A.B. (Sweden), Sr. Unsec. Global Notes,
9.63%, 12/01/12 35,000 39,550
======================================================================
173,769
======================================================================
METAL & GLASS CONTAINERS-3.09%
AEP Industries Inc., Sr. Unsec. Sub. Notes,
9.88%, 11/15/07 65,000 65,650
- ----------------------------------------------------------------------
Anchor Glass Container Corp., Sr. Sec. Global
Notes, 11.00%, 02/15/13 120,000 139,200
- ----------------------------------------------------------------------
Constar International Inc., Sr. Sub. Notes,
11.00%, 12/01/12 50,000 41,250
- ----------------------------------------------------------------------
Crown European Holdings S.A. (France), Sr.
Sec. Global Notes, 9.50%, 03/01/11 120,000 136,200
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
METAL & GLASS CONTAINERS-(CONTINUED)
Greif Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12 $150,000 $ 165,750
- ----------------------------------------------------------------------
Owens-Brockway Glass Container Inc.,
Sr. Sec. Gtd. Global Notes,
7.75%, 05/15/11 45,000 48,488
- ----------------------------------------------------------------------
8.75%, 11/15/12 100,000 111,750
- ----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 8.25%,
05/15/13 70,000 75,425
- ----------------------------------------------------------------------
Owens-Illinois, Inc., Sr. Unsec. Deb., 7.50%,
05/15/10 110,000 112,750
- ----------------------------------------------------------------------
Plastipak Holdings Inc., Sr. Unsec. Gtd.
Global Notes, 10.75%, 09/01/11 85,000 94,775
- ----------------------------------------------------------------------
Pliant Corp., Sr. Sec. Second Lien Global
Notes, 11.13%, 09/01/09 150,000 163,125
- ----------------------------------------------------------------------
Stone Container Corp., Sr. Unsec. Global
Notes, 8.38%, 07/01/12 5,000 5,500
- ----------------------------------------------------------------------
U.S. Can Corp., Sr. Sec. Notes, 10.88%,
07/15/10 (Acquired 07/15/03; Cost
$30,000)(a) 30,000 31,350
======================================================================
1,191,213
======================================================================
MOVIES & ENTERTAINMENT-0.77%
AMC Entertainment Inc., Sr. Unsec. Sub.
Notes, 9.50%, 02/01/11 135,000 142,425
- ----------------------------------------------------------------------
Imax Corp. (Canada), Sr. Unsec. Gtd. Notes,
9.63%, 12/01/10 (Acquired 11/19/03; Cost
$100,400)(a) 100,000 105,750
- ----------------------------------------------------------------------
River Rock Entertainment Authority, Sr.
Notes, 9.75%, 11/01/11 (Acquired 11/04/03;
Cost $44,393)(a) 45,000 48,544
======================================================================
296,719
======================================================================
MULTI-UTILITIES & UNREGULATED POWER-6.44%
AES Corp. (The),
Sr. Sec. Second Priority Notes, 8.75%,
05/15/13 (Acquired 05/01/03; Cost
$60,000)(a) 60,000 67,350
- ----------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 8.50%, 11/01/07 195,000 198,900
- ----------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19 211,516 229,495
- ----------------------------------------------------------------------
Calpine Canada Energy Finance ULC (Canada),
Sr. Unsec. Gtd. Notes, 8.50%, 05/01/08 165,000 131,588
- ----------------------------------------------------------------------
Calpine Corp.,
Sr. Sec. Notes, 8.75%, 07/15/13 (Acquired
07/10/03-11/07/03; Cost $308,950)(a) 315,000 305,550
- ----------------------------------------------------------------------
Sr. Unsec. Conv. Putable Notes, 4.00%,
12/26/04 80,000 78,600
- ----------------------------------------------------------------------
Sr. Unsec. Notes, 8.25%, 08/15/05 180,000 174,150
- ----------------------------------------------------------------------
Mirant Americas Generation, LLC, Sr. Unsec.
Notes, 7.63%, 05/01/06 (Acquired
04/04/03-07/10/03; Cost $214,950)(b)(c) 285,000 244,388
- ----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER-(CONTINUED)
NRG Energy, Inc., Sr. Sec. Second Priority
Notes, 8.00%, 12/15/13 (Acquired 12/17/03;
Cost $190,000)(a)(b) $190,000 $ 200,688
- ----------------------------------------------------------------------
Reliant Energy Mid-Atlantic Power Holdings,
LCC- Series B, Sr. Unsec. Asset-Backed Pass
Through Cfts., 9.24%, 07/02/17 65,708 69,650
- ----------------------------------------------------------------------
Reliant Resources, Inc., Sr. Sec. Notes,
9.25%, 07/15/10 (Acquired 06/26/03; Cost
$130,000)(a) 130,000 139,750
- ----------------------------------------------------------------------
9.50%, 07/15/13 (Acquired
06/26/03-09/16/03; Cost $119,538)(a) 130,000 139,750
- ----------------------------------------------------------------------
Williams Cos., Inc. (The),
Notes, 7.13%, 09/01/11 345,000 368,288
- ----------------------------------------------------------------------
Sr. Notes, 8.63%, 06/01/10 115,000 130,813
======================================================================
2,478,960
======================================================================
OFFICE ELECTRONICS-0.76%
Xerox Corp., Sr. Unsec. Notes, 7.63%,
06/15/13 270,000 292,950
======================================================================
OIL & GAS EQUIPMENT & SERVICES-0.92%
Grant Prideco Escrow Corp., Sr. Unsec. Gtd.
Global Notes, 9.00%, 12/15/09 50,000 55,250
- ----------------------------------------------------------------------
Hanover Compressor Co.,
Sr. Notes, 8.63%, 12/15/10 45,000 46,125
- ----------------------------------------------------------------------
Sub. Disc. Notes, 11.60%, 03/31/07(e) 45,000 33,413
- ----------------------------------------------------------------------
SESI, LLC, Sr. Unsec. Gtd. Global Notes,
8.88%, 05/15/11 200,000 218,000
======================================================================
352,788
======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-3.17%
CITGO Petroleum Corp., Sr. Unsec. Global
Notes, 11.38%, 02/01/11 230,000 270,250
- ----------------------------------------------------------------------
El Paso CGP Co.,
Sr. Unsec. Notes, 6.20%, 05/15/04 110,000 110,825
- ----------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/10 70,000 66,500
- ----------------------------------------------------------------------
</Table>
<Table>
- ----------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-(CONTINUED)
El Paso Production Holding Co., Sr. Unsec.
Gtd. Notes, 7.75%, 06/01/13 (Acquired
05/20/03-11/24/03; Cost $244,700)(a) $255,000 $ 254,681
- ----------------------------------------------------------------------
Frontier Oil Corp., Sr. Unsec. Sub. Notes,
11.75%, 11/15/09 200,000 227,500
- ----------------------------------------------------------------------
GulfTerra Energy Partners, L.P.
Series B, Sr. Unsec. Gtd. Sub. Global
Notes, 8.50%, 06/01/11 54,000 61,020
- ----------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.25%, 06/01/10 130,000 136,825
- ----------------------------------------------------------------------
Premcor Refining Group Inc. (The), Sr. Unsec.
Global Notes, 7.50%, 06/15/15 90,000 92,925
======================================================================
1,220,526
======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.06%
Bombardier Recreational Products Inc.
(Canada), Sr. Sub. Notes, 8.38%, 12/15/13
(Acquired 12/11/03; Cost $45,000)(a)(b) 45,000 47,025
- ----------------------------------------------------------------------
Couche-Tard US L.P./Couche-Tard Finance
Corp., Sr. Sub. Notes, 7.50%, 12/15/13
(Acquired 12/11/03; Cost $60,000)(a)(b) 60,000 63,450
- ----------------------------------------------------------------------
IOS Capital, Inc., Sr. Unsec. Notes, 7.25%,
06/30/08 80,000 85,500
- ----------------------------------------------------------------------
Poster Financial Group Inc., Sr. Sec. Notes,
8.75%, 12/01/11 (Acquired
11/18/03-11/19/03; Cost $40,500)(a) 40,000 42,500
- ----------------------------------------------------------------------
Von Hoffmann Corp., Sr. Unsec. Gtd. Notes,
10.25%, 03/15/09 (Acquired 10/07/03; Cost
$167,600)(a) 160,000 170,400
======================================================================
408,875
======================================================================
PACKAGED FOODS & MEATS-1.31%
Dole Food Co., Inc., Sr. Unsec. Global Notes,
8.88%, 03/15/11 460,000 504,850
======================================================================
PAPER PACKAGING-0.41%
Jefferson Smurfit Corp., Sr. Unsec. Gtd.
Unsub. Global Notes, 7.50%, 06/01/13 150,000 157,500
======================================================================
PAPER PRODUCTS-1.52%
Bowater Inc., Global Notes, 6.50%, 06/15/13 160,000 155,253
- ----------------------------------------------------------------------
Cascades Inc. (Canada), Sr. Unsec. Global
Notes, 7.25%, 02/15/13 100,000 105,000
- ----------------------------------------------------------------------
Georgia-Pacific Corp.,
Sr. Gtd. Global Notes, 7.38%, 07/15/08 100,000 108,000
- ----------------------------------------------------------------------
Sr. Notes, 8.00%, 01/15/24 (Acquired
12/04/03; Cost $70,000)(a)(b) 70,000 71,750
- ----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 8.88%,
02/01/10 125,000 143,750
======================================================================
583,753
======================================================================
PERSONAL PRODUCTS-0.76%
Elizabeth Arden, Inc.-Series B, Sr. Sec.
Global Notes, 11.75%, 02/01/11 107,000 128,935
- ----------------------------------------------------------------------
Herbalife International, Inc., Sr. Unsec.
Gtd. Sub. Global Notes, 11.75%, 07/15/10 140,000 163,800
======================================================================
292,735
======================================================================
PHARMACEUTICALS-0.75%
aaiPharma Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 11.00%, 04/01/10 190,000 216,125
- ----------------------------------------------------------------------
Valeant Pharmaceuticals International, Sr.
Notes, 7.00%, 12/15/11 (Acquired 12/09/03;
Cost $70,438)(a)(b) 70,000 72,100
======================================================================
288,225
======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
PUBLISHING-0.86%
Dex Media Inc., Disc. Notes, 9.00%, 11/15/13
(Acquired 11/03/03; Cost $45,020)(a)(d) $ 70,000 $ 49,525
- ----------------------------------------------------------------------
Medianews Group Inc., Sr. Sub. Notes, 6.88%,
10/01/13 (Acquired 11/20/03; Cost
$79,306)(a) 80,000 81,600
- ----------------------------------------------------------------------
PRIMEDIA Inc., Sr. Notes, 8.00%, 05/15/13
(Acquired 05/08/03-08/18/03; Cost
$193,650)(a) 195,000 199,875
======================================================================
331,000
======================================================================
RAILROADS-1.69%
Grupo Transportacion Ferroviaria Mexicana,
S.A. de C.V. (Mexico),
Sr. Gtd. Yankee Notes, 10.25%, 06/15/07 170,000 178,075
- ----------------------------------------------------------------------
Sr. Unsec. Gtd. Yankee Deb., 11.75%,
06/15/09 200,000 206,000
- ----------------------------------------------------------------------
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 9.50%, 10/01/08 210,000 236,775
- ----------------------------------------------------------------------
Westinghouse Air Brake Technologies Corp.,
Sr. Notes, 6.88%, 07/31/13 (Acquired
07/23/03; Cost $30,000)(a) 30,000 31,125
======================================================================
651,975
======================================================================
REAL ESTATE-1.75%
Host Marriott L.P.-Series G, Sr. Gtd. Global
Notes, 9.25%, 10/01/07 175,000 196,438
- ----------------------------------------------------------------------
iStar Financial Inc., Sr. Unsec. Notes,
6.50%, 12/15/13 90,000 92,475
- ----------------------------------------------------------------------
8.75%, 08/15/08 145,000 167,475
- ----------------------------------------------------------------------
MeriStar Hospitality Corp., Sr. Unsec. Gtd.
Global Notes, 9.13%, 01/15/11 205,000 218,069
======================================================================
674,457
======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.12%
LNR Property Corp., Sr. Sub. Notes, 7.25%,
10/15/13 (Acquired 10/15/03; Cost
$45,000)(a) 45,000 46,013
======================================================================
REGIONAL BANKS-0.57%
Western Financial Bank, Unsec. Sub. Deb.,
8.88%, 08/01/07 30,000 30,750
- ----------------------------------------------------------------------
9.63%, 05/15/12 170,000 189,975
======================================================================
220,725
======================================================================
SEMICONDUCTOR EQUIPMENT-0.10%
Amkor Technology, Inc., Sr. Unsec. Global
Notes, 7.75%, 05/15/13 35,000 37,625
======================================================================
SEMICONDUCTORS-0.32%
Viasystems Inc., Sr. Sub. Notes, 10.50%,
01/15/11 (Acquired 12/12/03-12/18/03; Cost
$117,813)(a)(b) 115,000 123,050
======================================================================
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
SPECIALTY CHEMICALS-2.98%
Huntsman International LLC,
Sr. Notes, 9.88%, 03/01/09 (Acquired
04/03/03-08/20/03; Cost $72,300)(a) $ 70,000 $ 77,000
- ----------------------------------------------------------------------
Sr. Unsec. Gtd. Global Notes, 9.88%,
03/01/09 210,000 231,000
- ----------------------------------------------------------------------
Huntsman LLC, Sr. Gtd. Notes, 11.63%,
10/15/10 (Acquired 09/16/03-12/03/03; Cost
$123,759)(a) 125,000 128,438
- ----------------------------------------------------------------------
Millennium America Inc., Sr. Notes, 9.25%,
06/15/08 (Acquired 11/12/03; Cost
$105,750)(a) 100,000 109,500
- ----------------------------------------------------------------------
OM Group, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 9.25%, 12/15/11 230,000 240,350
- ----------------------------------------------------------------------
Resolution Performance Products LLC, Sec.
Notes, 8.00%, 12/15/09 (Acquired 12/17/03;
Cost $190,000)(a)(b) 190,000 195,700
- ----------------------------------------------------------------------
Rhodia S.A. (France), Sr. Notes, 7.63%,
06/01/10 (Acquired 05/20/03; Cost
$35,000)(a) 35,000 33,775
- ----------------------------------------------------------------------
Westlake Chemical Corp., Sr. Unsec. Gtd.
Notes, 8.75%, 07/15/11 (Acquired 07/21/03;
Cost $120,000)(a) 120,000 132,000
======================================================================
1,147,763
======================================================================
SPECIALTY STORES-1.08%
General Nutrition Centers, Inc., Sr. Sub.
Notes, 8.50%, 12/01/10 (Acquired 11/25/03;
Cost $40,000)(a) 40,000 41,200
- ----------------------------------------------------------------------
Nebraska Book Co., Inc., Sr. Unsec. Sub.
Notes, 8.75%, 02/15/08 60,000 62,100
- ----------------------------------------------------------------------
Petco Animal Supplies Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 10.75%, 11/01/11 200,000 236,500
- ----------------------------------------------------------------------
Petro Stopping Centers L.P., Sr. Unsec.
Notes, 10.50%, 02/01/07 75,000 76,688
======================================================================
416,488
======================================================================
STEEL-0.78%
IPSCO, Inc. (Canada), Sr. Global Notes,
8.75%, 06/01/13 150,000 166,875
- ----------------------------------------------------------------------
MMI Products, Inc.-Series B, Sr. Unsec. Sub.
Notes, 11.25%, 04/15/07 165,000 135,300
======================================================================
302,175
======================================================================
TEXTILES-0.08%
Simmons Co., Sr. Sub. Notes, 7.88%, 01/15/14
(Acquired 12/10/03; Cost $30,000)(a)(b) 30,000 30,450
======================================================================
TRUCKING-1.17%
Laidlaw International Inc., Sr. Notes,
10.75%, 06/15/11 (Acquired 11/20/03; Cost
$138,438)(a) 125,000 141,250
- ----------------------------------------------------------------------
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ----------------------------------------------------------------------
TRUCKING-(CONTINUED)
Quality Distribution LLC/QD Capital Corp.,
Sr. Unsec. Gtd. Sub. Notes, 9.00%, 11/15/10
(Acquired 11/06/03; Cost $295,000)(a)(b) $295,000 $ 309,750
======================================================================
451,000
======================================================================
WIRELESS TELECOMMUNICATION SERVICES-5.82%
AirGate PCS, Inc., Sr. Sub. Disc. Notes,
13.50%, 10/01/09(d)(f) 340,000 243,100
- ----------------------------------------------------------------------
Alamosa (Delaware), Inc., Sr. Unsec. Gtd.
Disc. Notes, 12.00%, 07/31/09(d) 74,702 67,979
- ----------------------------------------------------------------------
American Tower Corp., Sr. Global Notes,
9.38%, 02/01/09 250,000 267,500
- ----------------------------------------------------------------------
American Tower Escrow Corp., Unsec. Disc.
Global Notes, 17.34%, 08/01/08(e) 105,000 72,975
- ----------------------------------------------------------------------
Centennial Cellular Operating Co./Centennial
Communications Corp., Sr. Unsec. Gtd.
Global Notes, 10.13%, 06/15/13 190,000 209,950
- ----------------------------------------------------------------------
Centennial Communications Corp., Sr. Sub.
Notes, 10.75%, 12/15/08 90,000 95,400
- ----------------------------------------------------------------------
Dobson Communications Corp., Sr. Notes,
8.88%, 10/01/13 (Acquired 09/12/03; Cost
$130,000)(a) 130,000 132,275
- ----------------------------------------------------------------------
Horizon PCS, Inc., Sr. Unsec. Gtd. Disc.
Global Notes, 14.00%, 10/01/10 (Acquired
09/19/00-10/12/01; Cost $59,391)(b)(g)(d) 120,000 27,000
- ----------------------------------------------------------------------
Innova S. de R.L. (Mexico), Notes, 9.38%,
09/19/13 (Acquired 09/12/03-12/02/03; Cost
$242,556)(a) 240,000 247,500
- ----------------------------------------------------------------------
iPCS, Inc., Sr. Unsec. Disc. Notes, 14.00%,
07/15/10 (Acquired 06/30/00-10/12/01; Cost
$68,327)(b)(g)(d) 130,000 18,525
- ----------------------------------------------------------------------
IWO Holdings, Inc., Sr. Unsec. Gtd. Global
Notes, 14.00%, 01/15/11 240,000 38,400
- ----------------------------------------------------------------------
Millicom International Cellular S.A.
(Luxembourg), Sr. Unsec. Notes, 10.00%,
12/01/13 (Acquired 11/19/03; Cost
$20,000)(a) 20,000 20,940
- ----------------------------------------------------------------------
Nextel Communications, Inc., Sr. Unsec.
Notes, 7.38%, 08/01/15 100,000 108,000
- ----------------------------------------------------------------------
Nextel Partners, Inc., Sr. Global Notes,
8.13%, 07/01/11 80,000 85,600
- ----------------------------------------------------------------------
Rural Cellular Corp., Sr. Unsec. Global
Notes, 9.88%, 02/01/10 100,000 107,000
- ----------------------------------------------------------------------
SBA Communications Corp., Sr. Unsec. Global
Notes, 10.25%, 02/01/09 235,000 233,238
- ----------------------------------------------------------------------
SBA Telecommunications Inc./SBA
Communications Corp., Sr. Disc. Notes,
9.75%, 12/15/11 (Acquired 12/08/03; Cost
$54,723)(a)(b)(d) 80,000 56,600
- ----------------------------------------------------------------------
UbiquiTel Operating Co., Sr. Unsec. Gtd.
Disc. Global Notes, 14.00%, 05/15/10(d) 48,000 36,360
- ----------------------------------------------------------------------
</Table>
<Table>
<Caption>
- ----------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
US Unwired Inc.-Series B, Sr. Unsec. Gtd.
Sub. Disc. Notes, 13.38%, 11/01/09(d) $ 90,000 $ 65,700
- ----------------------------------------------------------------------
Western Wireless Corp., Sr. Unsec. Global
Notes, 9.25%, 07/15/13 100,000 106,000
======================================================================
2,240,042
======================================================================
Total Bonds & Notes (Cost $33,429,118) 36,004,281
======================================================================
<Caption>
SHARES
STOCKS & OTHER EQUITY INTERESTS-4.30%
BROADCASTING & CABLE TV-2.23%
CSC Holdings, Inc.,
Series H, 11.75% Pfd 3,740 394,570
- ----------------------------------------------------------------------
Series M, 11.13% Pfd 2,500 263,750
- ----------------------------------------------------------------------
Knology, Inc.-Series D, Conv. Pfd. (Acquired
04/26/00; Cost $0)(a)(b)(h) 5,972 5,393
- ----------------------------------------------------------------------
ONO Finance PLC (United Kingdom)-Ctfs.,
expiring 05/31/09(i) 550 0
- ----------------------------------------------------------------------
UnitedGlobalCom Inc.-Class A(h) 23,051 195,477
======================================================================
859,190
======================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior-Wts., expiring 06/15/09
(Acquired 08/07/00; Cost $0)(a)(b)(i) 220 0
======================================================================
GENERAL MERCHANDISE STORES-0.01%
Travelcenters of America Inc.,
Wts., expiring 05/01/09(i) 100 525
- ----------------------------------------------------------------------
Wts., expiring 05/01/09 (Acquired 01/29/01;
Cost $0)(a)(b)(i) 300 1,575
======================================================================
2,100
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(b)(i) 300 0
======================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.72%
AES Trust VII - $3.00 Conv. Pfd 6,100 279,075
======================================================================
PUBLISHING-0.81%
PRIMEDIA Inc.,
Series D, 10.00% Pfd 1,660 163,510
- ----------------------------------------------------------------------
Series F, 9.20% Pfd 1,550 148,025
======================================================================
311,535
======================================================================
RAILROADS-0.03%
RailAmerica Inc.-Wts., expiring 08/15/10
(Acquired 10/05/00; Cost $0)(a)(b)(i) 175 10,341
======================================================================
</Table>
AIM V.I. HIGH YIELD FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-0.50%
Alamosa Holdings, Inc.-Series B, $18.75 Conv.
Pfd 93 $ 29,784
- ----------------------------------------------------------------------
American Tower Corp.-Wts., expiring 08/01/08
(Acquired 01/22/03; Cost $5,591)(a)(b)(i) 105 14,411
- ----------------------------------------------------------------------
Horizon PCS, Inc.-Wts., expiring 10/01/10
(Acquired 05/02/01; Cost $0)(a)(b)(i) 500 126
- ----------------------------------------------------------------------
iPCS, Inc.-Wts., expiring 07/15/10 (Acquired
01/29/01; Cost $0)(a)(b)(i) 100 0
- ----------------------------------------------------------------------
IWO Holdings Inc.-Wts., expiring 01/15/11
(Acquired 08/24/01-09/04/01; Cost
$2,600)(a)(b)(i) 240 0
- ----------------------------------------------------------------------
SpectraSite, Inc.(h) 4,276 148,597
- ----------------------------------------------------------------------
UbiquiTel Inc.-Wts., expiring 04/15/10
(Acquired 08/10/00; Cost $0)(a)(b)(i) 300 0
======================================================================
192,918
======================================================================
Total Stocks & Other Equity Interests
(Cost $1,545,379) 1,655,159
======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
MONEY MARKET FUNDS-0.31%
Liquid Assets Portfolio(j) 60,062 $ 60,062
- ----------------------------------------------------------------------
STIC Prime Portfolio(j) 60,062 60,062
======================================================================
Total Money Market Funds (Cost $120,124) 120,124
======================================================================
TOTAL INVESTMENTS-98.08% (Cost $35,094,621) 37,779,564
======================================================================
OTHER ASSETS LESS LIABILITIES-1.92% 738,577
======================================================================
NET ASSETS-100.00% $38,518,141
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Ctfs - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
PIK - Payment in Kind
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) 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 12/31/03 was $8,171,717, which represented 21.22% of the
Fund's net assets. Unless otherwise indicated, these securities are not
considered to be illiquid.
(b) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 12/31/03 was $2,304,309 which
represented 5.98% of the Fund's net assets.
(c) Defaulted security. Currently, the issuer is in default with respect to
interest payments.
(d) Discounted bond at issue. The interest rate represents the coupon rate
at which the bond will accrue at a specified future date.
(e) Zero coupon bond issued at a discount. The interest rate shown
represents the yield to maturity at issue.
(f) Consists of more than one class of securities traded together as a unit.
In addition to the security listed, each unit includes warrants to
purchase common or preferred shares of the issuer.
(g) Defaulted security.
(h) Non-income producing security.
(i) Non-income producing security acquired as part of a unit with or in
exchange for other securities.
(j) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $34,974,497) $ 37,659,440
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $120,124) 120,124
- -------------------------------------------------------------
Cash 16,551
- -------------------------------------------------------------
Receivables for:
Fund shares sold 8,562
- -------------------------------------------------------------
Dividends and interest 773,327
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 27,648
=============================================================
Total assets 38,605,652
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 16,557
- -------------------------------------------------------------
Fund shares reacquired 5,556
- -------------------------------------------------------------
Deferred compensation and retirement plans 27,832
- -------------------------------------------------------------
Accrued administrative services fees 19,647
- -------------------------------------------------------------
Accrued distribution fees -- Series II 719
- -------------------------------------------------------------
Accrued transfer agent fees 409
- -------------------------------------------------------------
Accrued operating expenses 16,791
=============================================================
Total liabilities 87,511
=============================================================
Net assets applicable to shares outstanding $ 38,518,141
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 50,277,164
- -------------------------------------------------------------
Undistributed net investment income 2,757,882
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (17,201,848)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 2,684,943
=============================================================
$ 38,518,141
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 37,267,082
_____________________________________________________________
=============================================================
Series II $ 1,251,059
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 6,241,751
_____________________________________________________________
=============================================================
Series II 210,094
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 5.97
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 5.95
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Interest $3,054,166
- ------------------------------------------------------------
Dividends 105,132
- ------------------------------------------------------------
Dividends from affiliated money market funds 17,164
============================================================
Total investment income 3,176,462
============================================================
EXPENSES:
Advisory fees 203,923
- ------------------------------------------------------------
Administrative services fees 116,171
- ------------------------------------------------------------
Custodian fees 20,102
- ------------------------------------------------------------
Distribution fees -- Series II 1,437
- ------------------------------------------------------------
Transfer agent fees 5,619
- ------------------------------------------------------------
Trustees' fees 8,804
- ------------------------------------------------------------
Professional fees 22,265
- ------------------------------------------------------------
Other 14,638
============================================================
Total expenses 392,959
============================================================
Less: Fees waived and expense offset
arrangements (620)
============================================================
Net expenses 392,339
============================================================
Net investment income 2,784,123
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 690,170
- ------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 4,478,128
============================================================
Net gain from investment securities 5,168,298
============================================================
Net increase in net assets resulting from
operations $7,952,421
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. HIGH YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,784,123 $ 2,730,208
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 690,170 (8,153,576)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 4,478,128 3,638,095
========================================================================================
Net increase (decrease) in net assets resulting from
operations 7,952,421 (1,785,273)
========================================================================================
Distributions to shareholders from net investment income:
Series I (2,487,542) --
- ----------------------------------------------------------------------------------------
Series II (82,493) --
========================================================================================
Decrease in net assets resulting from distributions (2,570,035) --
========================================================================================
Share transactions-net:
Series I 6,969,192 (2,028,474)
- ----------------------------------------------------------------------------------------
Series II 1,040,595 141,011
========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 8,009,787 (1,887,463)
========================================================================================
Net increase (decrease) in net assets 13,392,173 (3,672,736)
========================================================================================
NET ASSETS:
Beginning of year 25,125,968 28,798,704
========================================================================================
End of year (including undistributed net investment income
of $2,757,882 and $2,543,233 for 2003 and 2002,
respectively) $38,518,141 $25,125,968
________________________________________________________________________________________
========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. High Yield 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
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. 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.
The Fund's investment objective is to achieve a high level of current
income. The Fund will seek to achieve its objective by investing primarily in a
diversified portfolio of foreign and U.S. government and corporate debt
securities, including lower rated high yield debt securities (commonly known as
"junk bonds"). These high yield bonds may involve special risks in addition to
the risks associated with investment in higher rated debt securities. High yield
bonds may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade bonds. Also, the secondary
market in which high yield bonds are traded may be less liquid than the market
for higher grade bonds. Each company listed in the Schedule of Investments is
organized in the United States of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on
AIM V.I. HIGH YIELD FUND
the basis of prices provided by an independent pricing service. Prices
provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to special securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. 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. Securities for which market quotations are not
readily available or are questionable are valued at fair value as
determined in good faith by or under the supervision of the Trust's
officers in a manner specifically authorized 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. Short-term
obligations having 60 days or less to maturity and commercial paper are
valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
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.
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 AIM at the annual rate of 0.625% on the first
$200 million of the Fund's average daily net assets, plus 0.55% on the next $300
million of the Fund's average daily net assets, plus 0.50% on the next $500
million of the Fund's average daily net assets, plus 0.45% on the Fund's average
daily net assets in excess of $1 billion. AIM has contractually agreed to waive
fees and /or reimburse expenses of Series I and Series II shares to the extent
necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%
through December 31, 2004. 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. For the year ended December 31, 2003, AIM waived fees of
$318.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $116,171 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $6,812 for such
services.
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
AIM V.I. HIGH YIELD FUND
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 furnish continuing personal shareholder services to customers who
purchase and own Series II shares of the Fund. AIM Distributors has agreed to
reimburse the Fund's Rule 12b-1 distribution plan fees to the extent necessary
to limit total expenses of Series II shares to 1.45%. Pursuant to the Plan, for
the year ended December 31, 2003, the Series II shares paid $1,437.
Certain officers and trustees of the Trust are 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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 804,499 $10,612,201 $(11,356,638) $-- $ 60,062 $ 8,711 $--
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 804,499 10,612,201 (11,356,638) -- 60,062 8,453 --
==================================================================================================================================
$1,608,998 $21,224,402 $(22,713,276) $-- $ 120,124 $17,164 $--
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$1 and reductions in custodian fees of $301 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $302.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,631
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
AIM V.I. HIGH YIELD FUND
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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------
Distributions paid from ordinary income $2,570,035 $ --
_______________________________________________________________
===============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 2,804,503
- -------------------------------------------------------------
Unrealized appreciation -- investments 2,578,784
- -------------------------------------------------------------
Temporary book/tax differences (38,622)
- -------------------------------------------------------------
Capital loss carryforward (17,018,937)
- -------------------------------------------------------------
Post-October capital loss deferral (84,751)
- -------------------------------------------------------------
Shares of beneficial interest 50,277,164
=============================================================
Total net assets $ 38,518,141
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales, bond premium amortization and the treatment of defaulted bonds.
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 deferral of trustee compensation,
trustee retirement plan expenses and treatment of defaulted bonds.
The Fund utilized $116,269 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 for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2006 $ 130,838
- -----------------------------------------------------------
December 31, 2007 545,518
- -----------------------------------------------------------
December 31, 2008 2,010,706
- -----------------------------------------------------------
December 31, 2009 5,842,381
- -----------------------------------------------------------
December 31, 2010 8,489,494
===========================================================
Total capital loss carryforward $17,018,937
___________________________________________________________
===========================================================
</Table>
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, 2003 was $39,939,319 and $30,799,800, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $3,152,333
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (573,549)
============================================================
Net unrealized appreciation of investment
securities $2,578,784
____________________________________________________________
============================================================
Cost of investments for tax purposes is $35,200,780.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bond
adjustments, on December 31, 2003, undistributed net investment income was
increased by $561 and undistributed net realized gains (losses) decreased by
$561. This reclassification had no effect on the net assets of the Fund.
AIM V.I. HIGH YIELD FUND
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,368,232 $13,235,321 1,454,744 $ 7,353,977
- --------------------------------------------------------------------------------------------------------------------
Series II* 794,876 4,628,346 33,073 162,657
====================================================================================================================
Issued as reinvestment of dividends:
Series I 421,618 2,487,541 -- --
- --------------------------------------------------------------------------------------------------------------------
Series II* 14,029 82,493 -- --
====================================================================================================================
Reacquired:
Series I (1,546,778) (8,753,670) (1,877,404) (9,382,451)
- --------------------------------------------------------------------------------------------------------------------
Series II* (627,307) (3,670,244) (4,577) (21,646)
====================================================================================================================
1,424,670 $ 8,009,787 (394,164) $ 1,887,463)
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
* Series II shares commenced sales on March 26, 2002.
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.00 $ 5.31 $ 6.35 $ 9.02 $ 8.84
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.49(a) 0.51(a) 0.70(b) 0.91 1.03(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.91 (0.82) (1.01) (2.64) (0.10)
==========================================================================================================================
Total from investment operations 1.40 (0.31) (0.31) (1.73) 0.93
==========================================================================================================================
Less dividends from net investment income (0.43) -- (0.73) (0.94) (0.75)
==========================================================================================================================
Net asset value, end of period $ 5.97 $ 5.00 $ 5.31 $ 6.35 $ 9.02
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 28.04% (5.84)% (4.85)% (19.14)% 10.52%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $37,267 $24,984 $28,799 $26,151 $25,268
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.20%(d) 1.30% 1.21% 1.13% 1.14%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.20%(d) 1.30% 1.29% 1.19% 1.42%
==========================================================================================================================
Ratio of net investment income to average net assets 8.54%(d) 10.20% 11.39%(b) 11.44% 11.07%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 101% 74% 64% 72% 127%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.71 and the ratio of net investment income to average net
assets would have been 11.44%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios prior to
January 1, 2001 have not been restated to reflect this change in
presentation.
(c) Includes adjustments in accordance with generally accepted accounting
principles. Total returns do not reflect charges at the separate account
level which if included would reduce total returns for all periods
shown.
(d) Ratios are based on average daily net assets of $32,052,840.
AIM V.I. HIGH YIELD FUND
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
---------------------------------
MARCH 26, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 4.99 $ 5.27
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.49(a) 0.38(a)
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.90 (0.66)
===============================================================================================
Total from investment operations 1.39 (0.28)
===============================================================================================
Less dividends from net investment income (0.43) --
===============================================================================================
Net asset value, end of period $ 5.95 $ 4.99
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 27.89% (5.31)%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,251 $ 142
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.45%(c) 1.45%(d)
- -----------------------------------------------------------------------------------------------
Without fee waivers 1.45%(c) 1.55%(d)
===============================================================================================
Ratio of net investment income to average net assets 8.29%(c) 10.05%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 101% 74%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with generally accepted accounting
principles and is not annualized for periods less than one year. Total
returns do not reflect charges at separate account level which if
included would reduce total returns for all periods shown.
(c) Ratios are based on average daily net assets of $574,771.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of
AIM V.I. HIGH YIELD FUND
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Financial Services, the Commissioner of Securities for the State of Georgia, the
Office of the State Auditor for the State of West Virginia, and the Office of
the Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
NOTE 13--SIGNIFICANT EVENTS
On December 9, 2003 the Board of Trustees approved an Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Fund would acquire all of the
assets of INVESCO VIF-High Yield Fund ("Selling Fund"), a series of INVESCO
Variable Investment Funds, Inc. As a result of the Plan, shareholders of the
Selling Fund would receive shares of the Fund in exchange for their shares of
the Selling Fund, and the Selling Fund would cease operations.
The Fund requires approval of the Selling Fund's shareholders and will be
submitted to the shareholders for their consideration at a special meeting to be
held on March 26, 2004. If the Plan is approved by shareholders of the Selling
Fund and certain conditions required by the Plan are satisfied, the transaction
is expected to become effective on or about April 30, 2004.
AIM V.I. HIGH YIELD FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
High Yield Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the years or periods in the five year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. High Yield Fund as of December 31, 2003, 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 years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. HIGH YIELD FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -----------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Chairman and Group Inc. (financial services holding
President company); and Director and Vice Chairman,
AMVESCAP PLC and Chairman of 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), and Fund
Management Company (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. and 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
- -----------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & company)
McKenzie
- -----------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -----------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss (Chairman) (registered
Group Ltd. (private investment and investment company);
management) and Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief (insurance company)
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, Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund
company) and Texana Timber LP (sustainable (non-profit)
forestry company)
- -----------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. HIGH YIELD FUND
Trustees and Officers (continued)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis Cortland Trust, Inc.
Trustee and Frankel LLP (registered investment
company)
- --------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited
Partnership (real estate development
company)
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary N/A
Senior Vice President and Chief and General Counsel, A I M Management
Legal Officer Group Inc. (financial services holding
company) and A I M Advisors, Inc.; Vice
President, A I M Capital Management, Inc.,
A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice President
and General Counsel, Liberty Funds Group,
LLC
- --------------------------------------------------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance N/A
Vice President Officer, A I M Advisors, Inc. and A I M
Capital Management, Inc.; and Vice
President, AIM Investment Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management N/A
Vice President Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and
Chief Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 0% is eligible for the dividends received deduction for
corporation.
AIM V.I. HIGH YIELD FUND
AIM V.I. INTERNATIONAL GROWTH FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. INTERNATIONAL GROWTH FUND seeks to
provide long-term growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. INTERNATIONAL GROWTH FUND
FUND POSTS DOUBLE-DIGIT RETURNS ON dollar, Canadian dollar, euro, Swiss
STRENGTH OF INTERNATIONAL MARKETS franc and Japanese yen all appreciated
significantly against the U.S. dollar.
For the fiscal year ended December 31, this backdrop, Japanese markets rose
2003, AIM V.I. International Growth Fund sharply through the summer but sold off YOUR FUND
Series I and Series II shares returned late in October. Still, the MSCI Japan
29.06% and 28.60%, respectively. In Index returned 35.91% for the fiscal During the fiscal year, currency
comparison, the fund's broad market year. Many emerging Asian markets also appreciation and stock selection were
index, the MSCI EAFE Index, returned produced positive returns for the the primary drivers of fund performance.
38.59%; the fund's style-specific index, reporting period after struggling As noted above, foreign currencies
the MSCI EAFE Growth Index, returned earlier in the year with the SARS generally outperformed the U.S. dollar
31.99%; and the fund's peer-group index, (severe acute respiratory syndrome) during the fiscal year. This had a
the Lipper International Fund Index, epidemic. positive impact on fund performance as
returned 36.00%. we do not hedge currencies. We buy
European stock markets generally securities in local currency and then
We believe the fund lagged its rallied during the fiscal year. However, translate that value back into U.S.
benchmarks because the fund's investment in its October policy meeting, the Bank dollars for the fund.
strategy of selecting companies with of England reported that there continued
above-average earnings growth and strong to be a contrast between the weak euro The fund is neither sector nor
fundamentals was out of synch with index area economic data and more promising country driven. Instead, portfolio
composition. Many large constituents in business survey indicators. Indeed, composition is a result of our bottom-up
our benchmark indexes, which performed annualized euro zone gross domestic stock selection strategy. That said, in
strongly during much of the year, simply product (GDP) declined by 0.1% in the Asia our exposure to South Korea, Taiwan
did not fit our earnings discipline. second quarter. German retail sales and Japan contributed to fund
(excluding car-related sales) and French performance. Markets in South Korea and
MARKET CONDITIONS consumer spending on manufactured goods Taiwan generally benefited from U.S.
both fell in August. demand for exports, while Japanese
Amid an improving global economic markets turned in their strongest
environment, most international markets Economic activity picked up in the performance in years. Fund holding,
posted positive returns for the fiscal second half of the year, with the euro Nitto Denko-a Japanese maker of
year with emerging market stocks zone annualized GDP rising 0.4% for the specialty chemicals-reported a 13.2%
generally outperforming those in third quarter. And late-year business increase in net sales for the six-month
developed countries. Market and economic surveys also offered promise. European period ended September 30, 2003,
conditions, however, varied by region. Commission Business Survey data compared with the same period a year
suggested that confidence in the ago.
In Asia, Japan's economy finally manufacturing sector continued to
appeared to be showing signs of a strengthen from September through Stocks in Canada also contributed to
cyclical upswing. While deflationary November. fund performance. In particular, two
pressures persisted, exports have shown Canadian energy companies, Suncor Energy
healthy gains for nearly a year. Amid On the currency front, foreign and Petro-Canada, benefited from strong
currencies generally proved stronger oil prices, reporting increases in third
than the U.S. dollar. During the quarter net earnings compared with the
reporting period, the Australian same period last year.
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Teva Pharmaceutical Industries 1. Diversified Banks 12.6% Total returns 12/31/02-12/31/03,
Ltd.- ADR (Israel) 2.9% 2. Pharmaceuticals 8.2 excluding product issuer charges
2. Vodafone Group PLC 3. Integrated Oil & Gas 7.5 Series I Shares 29.06%
(United Kingdom) 2.7 4. Electronic Equipment Series II Shares 28.60
3. Total S.A.-Class B (France) 2.1 Manufacturers 6.4 MSCI EAFE Index
4. Suncor Energy, Inc. (Canada) 1.9 5. Wireless Telecommunication (Broad Market Index) 38.59
5. Eni S.p.A. (Italy) 1.7 Services 5.5 MSCI EAFE Growth Index
6. Reckitt Benckiser PLC 6. Food Retail 4.1 (Style-specific Index) 31.99
(United Kingdom) 1.7 7. Automobile Manufacturers 3.6 Lipper International Fund
7. Imperial Tobacco Group PLC 8. Specialty Chemicals 3.2 Index (Peer Group Index) 36.00
(United Kingdom) 1.7 9. Industrial Machinery 2.6 Source: Lipper, Inc.
8. Tesco PLC (United Kingdom) 1.7 10. Integrated Telecommunication TOTAL NUMBER OF HOLDINGS* 126
9. Nitto Denko Corp. (Japan) 1.7 Services 2.6 TOTAL NET ASSETS $301.6 MILLION
10. Smith & Nephew PLC
(United Kingdom) 1.6
*Excludes money market fund holdings and is based on total net assets. The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
<Table>
AIM V.I. INTERNATIONAL GROWTH FUND
Select stocks in India, France and RESULTS OF A $10,000 INVESTMENT
Germany detracted from performance. In 5/5/93-12/31/03
India, Infosys Technologies Limited-an Index data from 4/30/93
Indian software company-witnessed a
sharp sell-off earlier in the year when [LINE CHART]
management guidance disappointed the
market. While euro appreciation provided
a currency boost to French and German
holdings, stock selection proved a drag LIPPER AIM V.I.
on performance. For example, during the INTERNATIONAL INTERNATIONAL MSCI
fiscal year, Aventis, a Franco-German FUND GROWTH FUND- EAFE MSCI EAFE
pharmaceutical company, suffered from a INDEX SERIES I SHARES INDEX GROWTH INDEX
slowing in earnings growth and generic
challenges to its allergy drug Allegra.
We sold our position in Aventis during 5/5/1993 10000 10000 10000 10000
the reporting period. 12/31/1993 12188 11890 10811 10607
12/31/1994 12098 11698 11652 11087
On a sector basis, all sectors within 12/31/1995 13311 13716 12958 12348
the fund posted positive returns. Our 12/31/1996 15231 16468 13742 12776
overweight positions in information 12/31/1997 16335 17610 13986 13045
technology and financial stocks-two of 12/31/1998 18403 20340 16783 15942
the higher-performing sectors in the 12/31/1999 25366 31535 21308 20638
MSCI EAFE index for the fiscal 12/31/2000 21633 23202 18289 15578
year-contributed to both absolute and 12/31/2001 17451 17743 14367 11749
relative fund performance. Utility 12/31/2002 15038 14961 12077 9867
stocks contributed the least to fund 12/31/2003 20451 19309 16737 13023
performance during the fiscal year.
IN CLOSING Source: Lipper, Inc
After a few challenging years for Past performance cannot guarantee comparable future results.
international markets, we are pleased to
provide shareholders double-digit In evaluating this chart, please note that the chart uses a logarithmic scale
returns for the fiscal year. And we along the vertical axis (the value scale). This means that each scale increment
remain committed to our investment goal always represents the same percent change in price; in a linear chart each scale
of focusing on companies that have increment always represents the same absolute change in price. In this example,
experienced above-average, long-term the scale increment between $5,000 and $10,000 is the same as that between
earnings growth with strong prospects $10,000 and $20,000. In a linear chart, the latter scale increment would be
for future growth. 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
AVERAGE ANNUAL TOTAL RETURNS 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. AIM uses a
As of 12/31/03 logarithmic scale in financial reports of funds that have more than five years
of performance history.
SERIES I SHARES
Inception (5/5/93) 6.37% made today may differ substantially from performance of foreign stocks tracked by
10 Years 4.97 the historical performance shown. Please Morgan Stanley Capital International.
5 Years -1.03 see your financial advisor for more The Growth portion measures performance
1 Year 29.06 current performance. Fund performance of companies with higher price/earnings
figures are historical, and they reflect ratios and higher forecasted growth
SERIES II SHARES** fund expenses, the reinvestment of values.
10 Years 4.70% distributions and changes in net asset
5 Years -1.30 value. The fund's investment return and The unmanaged MSCI Japan Index is a
1 Year 28.60 principal value will fluctuate, so an marketvalue-weighted average of the
investor's shares, when redeemed, may be performance of more than 300 securities
worth more or less than their original on the Japanese stock exchanges tracked
**Series II shares were first offered cost. by Morgan Stanley Capital International.
9/19/01. Returns prior to that date are
hypothetical results based on the AIM Variable Insurance Funds are A direct investment cannot be made in
performance of Series I shares from offered through insurance company an index. Unless otherwise indicated,
12/31/93, adjusted to reflect Series II separate accounts to fund variable index results include reinvested
12b-1 fees. The Series I and Series II annuity contracts and variable life dividends, and they do not reflect sales
shares invest in the same portfolio of insurance policies, and through certain charges. Performance of an index of
securities and will have substantially pension or retirement plans. Performance funds reflects fund expenses;
similar performance, except to the figures given represent the fund and are performance of a market index does not.
extent that expenses borne by each class not intended to reflect actual variable
differ. product values. They do not reflect Industry classifications used in this
sales charges, expenses and fees at the report are generally according to the
Current performance may be lower or separate account level. Sales charges, Global Industry Classification Standard,
higher than the performance data quoted. expenses and fees, which are determined which was developed by and is the
Past performance cannot guarantee by the product issuers, will vary and exclusive property and a service mark of
comparable future results. Due to will lower the total return. Morgan Stanley Capital International
significant market volatility, results Inc. and Standard & Poor's.
of an investment PRINCIPAL RISKS OF INVESTING IN THE FUND
A description of the policies and
International investing presents certain procedures that the Fund uses to
risks not associated with investing determine how to vote proxies relating
solely in the United States. These to portfolio securities is available
include risks relating to fluctuations without charge, upon request, by calling
in the value of the U.S. dollar relative 800-959-4246, or on the AIM Web site,
to the values of other currencies, the AIMinvestments.com.
custody arrangements made for the fund's
foreign holdings, differences in
accounting, political risks and the PORTFOLIO MANAGEMENT TEAM
lesser degree of public information AS OF 12/31/03
required to be provided by non-U.S. SHUXIN CAO
companies. JASON T. HOLZER
CLAS G. OLSSON, LEAD MANAGER
ABOUT INDEXES USED IN THIS REPORT BARRETT K. SIDES, LEAD MANAGER
ASSISTED BY ASIA PACIFIC TEAM AND
The unmanaged Lipper International Fund EUROPE/CANADA TEAM
Index represents an average of the 30
largest international funds tracked by
Lipper, Inc., an independent mutual fund
performance monitor, and is considered
representative of international stocks.
The unmanaged MSCI Europe,
Australasia and the Far East (the
EAFE--Registered Trademark--) Growth
Index is a subset of the unmanaged MSCI
EAFE--Registered Trademark--, which
represents the
VIIGR-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN STOCKS-97.75%
AUSTRALIA-1.36%
BHP Billiton Ltd. (Diversified Metals &
Mining) 266,900 $ 2,446,152
- ------------------------------------------------------------------------
BlueScope Steel Ltd. (Steel) 255,060 1,073,894
- ------------------------------------------------------------------------
Promina Group Ltd. (Property & Casualty
Insurance) (Acquired 05/12/03; Cost
$280,650)(a) 241,600 595,802
========================================================================
4,115,848
========================================================================
AUSTRIA-0.49%
Erste Bank der oesterreichischen Sparkassen
A.G. (Diversified Banks) 11,900 1,466,514
========================================================================
BRAZIL-0.68%
Companhia de Bebidas das Americas-ADR
(Brewers) 65,500 1,670,905
- ------------------------------------------------------------------------
Embraer-Empresa Brasileira de Aeronautica
S.A.-ADR (Aerospace & Defense)(b) 11,000 385,330
========================================================================
2,056,235
========================================================================
CANADA-6.93%
Canadian National Railway Co. (Railroads) 41,700 2,638,426
- ------------------------------------------------------------------------
CP Railway Ltd. (Railroads) 54,900 1,549,569
- ------------------------------------------------------------------------
Loblaw Cos. Ltd. (Food Retail) (Acquired
1/12/2001-10/15/2001; Cost $2,730,271)(a) 85,800 4,422,407
- ------------------------------------------------------------------------
Manulife Financial Corp. (Life & Health
Insurance) 82,200 2,654,375
- ------------------------------------------------------------------------
Petro-Canada (Integrated Oil & Gas) 65,500 3,230,019
- ------------------------------------------------------------------------
Shoppers Drug Mart Corp. (Drug Retail)
(Acquired 11/18/03; Cost
$533,415)(a)(b)(c)(d) 25,000 578,318
- ------------------------------------------------------------------------
Shoppers Drug Mart Inc. (Drug Retail)(b) 11,300 261,400
- ------------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 222,600 5,582,176
========================================================================
20,916,690
========================================================================
DENMARK-0.75%
A P Moller-Maersk A.S. (Marine) 315 2,268,083
========================================================================
FRANCE-8.21%
BNP Paribas S.A. (Diversified Banks) 50,530 3,172,999
- ------------------------------------------------------------------------
Bouygues S.A. (Wireless Telecommunication
Services) 45,000 1,569,104
- ------------------------------------------------------------------------
Carrefour S.A. (Hypermarkets & Super Centers) 24,200 1,324,800
- ------------------------------------------------------------------------
Lagardere S.C.A. (Publishing)(b) 36,000 2,072,667
- ------------------------------------------------------------------------
Pernod Ricard S.A. (Distillers & Vintners) 31,297 3,470,333
- ------------------------------------------------------------------------
Renault S.A. (Automobile Manufacturers) 51,600 3,550,448
- ------------------------------------------------------------------------
Societe Generale (Diversified Banks) 37,600 3,310,793
- ------------------------------------------------------------------------
Total S.A.-Class B (Integrated Oil & Gas) 34,005 6,305,019
========================================================================
24,776,163
========================================================================
GERMANY-3.53%
Continental A.G. (Tires & Rubber) 63,600 2,405,673
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
GERMANY-(CONTINUED)
Deutsche Telekom A.G. (Integrated
Telecommunications Services)(b) 129,425 $ 2,362,282
- ------------------------------------------------------------------------
Metro A.G. (Hypermarkets & Super Centers)(b) 37,100 1,631,050
- ------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 10/08/03-10/30/03; Cost
$1,583,198)(a) 11,379 2,003,910
- ------------------------------------------------------------------------
Siemens A.G. (Industrial Conglomerates)(b) 28,050 2,240,540
========================================================================
10,643,455
========================================================================
HONG KONG-2.08%
Cathay Pacific Airways Ltd. (Airlines) 839,000 1,594,009
- ------------------------------------------------------------------------
Cheung Kong (Holdings) Ltd. (Real Estate
Management & Development) 151,000 1,201,021
- ------------------------------------------------------------------------
CNOOC Ltd.-ADR (Oil & Gas Exploration &
Production) 33,300 1,329,336
- ------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Industrial
Conglomerates) 170,000 1,253,607
- ------------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Real Estate
Management & Development) 110,000 910,338
========================================================================
6,288,311
========================================================================
HUNGARY-0.75%
OTP Bank Rt. (Diversified Banks) 177,300 2,265,098
========================================================================
INDIA-1.96%
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance) 35,264 498,024
- ------------------------------------------------------------------------
Infosys Technologies Ltd. (IT Consulting &
Other Services) 33,320 4,063,178
- ------------------------------------------------------------------------
Maruti Udyog Ltd. (Automobile
Manufactures)(b) 163,500 1,348,494
========================================================================
5,909,696
========================================================================
INDONESIA-0.00%
PT Lippo Bank Tbk (Diversified Banks)(b) 228,137 12,189
========================================================================
IRELAND-1.72%
Anglo Irish Bank Corp. PLC (Diversified
Banks) 224,000 3,524,938
- ------------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks) 13,100 1,649,497
========================================================================
5,174,435
========================================================================
ISRAEL-2.91%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 154,800 8,778,708
========================================================================
ITALY-5.22%
Banca Intesa S.p.A. (Diversified Banks) 780,600 3,043,942
- ------------------------------------------------------------------------
Banco Popolare di Verona e Novara Scrl
(Diversified Banks) 146,000 2,464,629
- ------------------------------------------------------------------------
Eni S.p.A. (Integrated Oil & Gas) 278,800 5,246,510
- ------------------------------------------------------------------------
Mediaset S.p.A. (Broadcasting & Cable TV)(b) 324,500 3,845,136
- ------------------------------------------------------------------------
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
ITALY-(CONTINUED)
San Paolo-IMI S.p.A. (Diversified Banks)(b) 87,700 $ 1,140,686
========================================================================
15,740,903
========================================================================
JAPAN-17.31%
Canon Inc. (Office Electronics) 72,000 3,346,498
- ------------------------------------------------------------------------
Daiwa House Industry Co., Ltd. (Homebuilding) 105,000 1,114,940
- ------------------------------------------------------------------------
Fanuc Ltd. (Industrial Machinery) 44,400 2,655,067
- ------------------------------------------------------------------------
Fuji Photo Film Co., Ltd. (Photographic
Products) 24,000 773,472
- ------------------------------------------------------------------------
Hirose Electric Co., Ltd. (Electronic
Equipment Manufacturers) 18,000 2,062,221
- ------------------------------------------------------------------------
Hoya Corp. (Electronic Equipment
Manufacturers) 48,700 4,463,562
- ------------------------------------------------------------------------
JSR Corp. (Specialty Chemicals) 132,000 2,944,672
- ------------------------------------------------------------------------
KDDI Corp. (Wireless Telecommunication
Services) 350 2,001,677
- ------------------------------------------------------------------------
Keyence Corp. (Electronic Equipment
Manufacturers) 16,800 3,534,948
- ------------------------------------------------------------------------
Nidec Corp. (Electronic Equipment
Manufacturers) 31,400 2,992,008
- ------------------------------------------------------------------------
Nissan Motor Co., Ltd. (Automobile
Manufacturers) 299,100 3,410,007
- ------------------------------------------------------------------------
Nitto Denko Corp. (Specialty Chemicals) 94,900 5,038,469
- ------------------------------------------------------------------------
NOK Corp. (Auto Parts & Equipment) 36,000 1,307,750
- ------------------------------------------------------------------------
Ricoh Co., Ltd. (Office Electronics) 84,000 1,654,806
- ------------------------------------------------------------------------
Sekisui Chemical Co., Ltd. (Homebuilding)(b) 118,000 600,112
- ------------------------------------------------------------------------
Shin-Etsu Chemical Co., Ltd. (Specialty
Chemicals) 38,000 1,550,298
- ------------------------------------------------------------------------
SMC Corp. (Industrial Machinery)(b) 12,000 1,491,058
- ------------------------------------------------------------------------
Takeda Chemical Industries, Ltd.
(Pharmaceuticals) 85,900 3,400,475
- ------------------------------------------------------------------------
Toyota Motor Corp. (Automobile Manufacturers) 71,400 2,407,489
- ------------------------------------------------------------------------
Trend Micro Inc. (Application Software) 80,300 2,150,359
- ------------------------------------------------------------------------
Yamaha Corp. (Leisure Products) 41,400 811,727
- ------------------------------------------------------------------------
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals) 80,400 2,493,778
========================================================================
52,205,393
========================================================================
MEXICO-2.11%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 106,736 2,918,162
- ------------------------------------------------------------------------
Grupo Financiero BBVA Bancomer, S.A. de C.V.-
Class B (Diversified Banks)(b) 1,782,200 1,523,519
- ------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V.-Series C
(Hypermarkets & Super Centers) 714,500 1,911,908
========================================================================
6,353,589
========================================================================
NETHERLANDS-2.18%
ABN AMRO Holding N.V. (Diversified Banks) 70,800 1,652,050
- ------------------------------------------------------------------------
Aegon N.V. (Life & Health Insurance) 162,300 2,394,764
- ------------------------------------------------------------------------
James Hardie Industries N.V. (Netherlands)
(Construction Materials) 131,500 680,214
- ------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics N.V.
(Consumer Electronics) 63,800 1,857,881
========================================================================
6,584,909
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
NORWAY-1.20%
Telenor A.S.A. (Integrated Telecommunication
Services) 553,200 $ 3,606,853
========================================================================
SINGAPORE-1.62%
DBS Group Holdings Ltd. (Diversified
Banks)(b) 168,000 1,454,374
- ------------------------------------------------------------------------
Keppel Corp. Ltd. (Industrial Conglomerates) 355,000 1,275,286
- ------------------------------------------------------------------------
Singapore Airlines Ltd. (Airlines)(b) 172,000 1,134,478
- ------------------------------------------------------------------------
United Overseas Bank Ltd. (Diversified Banks) 132,001 1,026,126
========================================================================
4,890,264
========================================================================
SOUTH KOREA-1.79%
Hana Bank (Diversified Banks) 65,900 1,215,765
- ------------------------------------------------------------------------
Samsung Electronics Co., Ltd. (Electronic
Equipment Manufacturers) 11,100 4,197,987
========================================================================
5,413,752
========================================================================
SPAIN-1.84%
Banco Popular Espanol S.A. (Diversified
Banks) 55,360 3,293,846
- ------------------------------------------------------------------------
Repsol YPF, S.A. (Integrated Oil & Gas) 115,400 2,244,199
========================================================================
5,538,045
========================================================================
SWEDEN-4.39%
Atlas Copco A.B.-Class A (Industrial
Machinery) 59,000 2,106,997
- ------------------------------------------------------------------------
Autoliv, Inc.-SDR (Auto Parts & Equipment) 58,200 2,203,536
- ------------------------------------------------------------------------
ForeningsSparbanken A.B. (Diversified
Banks)(b) 124,400 2,441,245
- ------------------------------------------------------------------------
SKF AB-Class B (Industrial Machinery)(b) 40,900 1,576,895
- ------------------------------------------------------------------------
Tele2 A.B.-Class B (Integrated
Telecommunication Services)(b) 32,900 1,752,112
- ------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson A.B.
(Communications Equipment) 790,600 1,414,429
- ------------------------------------------------------------------------
Volvo A.B.-Class B (Construction & Farm
Machinery & Heavy Trucks) 57,000 1,739,130
========================================================================
13,234,344
========================================================================
SWITZERLAND-4.79%
Credit Suisse Group (Diversified Capital
Markets)(b) 100,387 3,662,135
- ------------------------------------------------------------------------
Nestle S.A. (Packaged Foods & Meats) 4,900 1,220,655
- ------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals) 17,700 1,780,131
- ------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals) 29,025 1,949,196
- ------------------------------------------------------------------------
Synthes-Stratec, Inc. (Health Care
Equipment)(b) 1,700 1,677,523
- ------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets) 60,700 4,144,865
========================================================================
14,434,505
========================================================================
TAIWAN-3.07%
Compal Electronics Inc. (Computer Hardware) 1,050,000 1,437,721
- ------------------------------------------------------------------------
Far Eastern Textile Ltd.-GDR (Industrial
Conglomerates) (Acquired 11/12/99-11/15/99;
Cost $230,553)(a)(c)(d) 20,701 106,610
- ------------------------------------------------------------------------
Far Eastern Textile Ltd.-GDR (Industrial
Conglomerates) 34,464 177,490
- ------------------------------------------------------------------------
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
TAIWAN-(CONTINUED)
Hon Hai Precision Industry Co., Ltd.
(Electronic Equipment Manufacturers) 494,000 $ 1,941,961
- ------------------------------------------------------------------------
MediaTek Inc. (Semiconductors) 96,000 901,767
- ------------------------------------------------------------------------
Quanta Computer Inc. (Computer Hardware) 499,000 1,226,929
- ------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors) 338,040 3,461,530
========================================================================
9,254,008
========================================================================
THAILAND-0.01%
Siam Commercial Bank PCL (Diversified
Banks)(b) 32,800 44,700
========================================================================
UNITED KINGDOM-20.85%
AstraZeneca PLC (Pharmaceuticals) 77,875 3,726,428
- ------------------------------------------------------------------------
Barclays PLC (Diversified Banks) 367,700 3,271,153
- ------------------------------------------------------------------------
Centrica PLC (Gas Utilities) 701,200 2,641,704
- ------------------------------------------------------------------------
Enterprise Inns PLC (Restaurants) 104,500 1,891,969
- ------------------------------------------------------------------------
Galen Holdings PLC (Pharmaceuticals) 137,200 1,751,540
- ------------------------------------------------------------------------
GlaxoSmithKline PLC (Pharmaceuticals) 76,400 1,746,076
- ------------------------------------------------------------------------
GUS PLC (Catalog Retail)(b) 283,620 3,917,031
- ------------------------------------------------------------------------
ICAP PLC (Investment Banking & Brokerage) 66,200 1,838,012
- ------------------------------------------------------------------------
Imperial Tobacco Group PLC (Tobacco) 262,700 5,159,559
- ------------------------------------------------------------------------
Kingfisher PLC (Home Improvement Retail) 294,237 1,463,128
- ------------------------------------------------------------------------
Man Group PLC (Asset Management & Custody
Banks) 59,490 1,551,865
- ------------------------------------------------------------------------
mm02 PLC (Wireless Telecommunication
Services)(b) 1,399,600 1,924,219
- ------------------------------------------------------------------------
Morrison (William) Supermarkets PLC (Food
Retail) 727,275 2,934,722
- ------------------------------------------------------------------------
Next PLC (Department Stores) 185,650 3,722,499
- ------------------------------------------------------------------------
Reckitt Benckiser PLC (Household Products) 232,250 5,241,585
- ------------------------------------------------------------------------
Shire Pharmaceuticals Group PLC
(Pharmaceuticals)(b) 121,100 1,173,015
- ------------------------------------------------------------------------
Smith & Nephew PLC (Health Care Supplies) 563,875 4,724,403
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Tesco PLC (Food Retail) 1,097,511 $ 5,050,884
- ------------------------------------------------------------------------
Travis Perkins PLC (Home Improvement Retail) 39,000 889,929
- ------------------------------------------------------------------------
Vodafone Group PLC (Wireless
Telecommunication Services) 3,344,650 8,271,044
========================================================================
62,890,765
========================================================================
Total Foreign Stocks (Cost $224,154,386) 294,863,455
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-0.00%
INDIA-0.00%
Hindustan Lever Ltd. (Household Products),
Sec. Deb., 9.00%, 01/01/05 (Cost
$0)(e)(f) INR 187,000 263
========================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-2.26%
Liquid Assets Portfolio(g) 3,403,797 3,403,797
- ------------------------------------------------------------------------
STIC Prime Portfolio(g) 3,403,797 3,403,797
========================================================================
Total Money Market Funds (Cost
$6,807,594) 6,807,594
========================================================================
TOTAL INVESTMENTS-100.02% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $230,959,831) 301,671,312
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-8.70%
Liquid Assets Portfolio(g)(h) 13,119,765 13,119,765
- ------------------------------------------------------------------------
STIC Prime Portfolio(g)(h) 13,119,764 13,119,764
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $26,239,529) 26,239,529
========================================================================
TOTAL INVESTMENTS-108.71% (Cost
$257,201,509)(i) 327,910,841
========================================================================
OTHER ASSETS LESS LIABILITIES-(8.71%) (26,259,239)
========================================================================
NET ASSETS-100.00% $301,651,602
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
INR - Indian Rupee
</Table>
Notes to Schedule of Investments:
(a) 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 12/31/03 was $7,707,047,
which represented 2.55% of the Fund's net assets .
(b) Non-income producing security.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 12/31/03 was $684,928 which represented
0.23% of the Fund's net assets.
(e) Foreign denominated security. Par value is denominated in currency
indicated.
(f) Hindustan Lever Ltd. security was received through a corporate action.
(g) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(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 3.
(i) Companhia Vale Do Rio Doce security was received through a Corporate action
with no cost basis and as of 12/31/03 it has no market value.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$224,154,386)* $ 294,863,718
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $33,047,123) 33,047,123
- -------------------------------------------------------------
Foreign currencies, at value (cost $3,108,585) 3,142,268
- -------------------------------------------------------------
Receivables for:
Fund shares sold 237,319
- -------------------------------------------------------------
Dividends and interest 381,875
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 53,150
- -------------------------------------------------------------
Other assets 205
=============================================================
Total assets 331,725,658
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 2,251,035
- -------------------------------------------------------------
Fund shares reacquired 1,312,134
- -------------------------------------------------------------
Deferred compensation and retirement plans 64,909
- -------------------------------------------------------------
Collateral upon return of securities loaned 26,239,529
- -------------------------------------------------------------
Accrued administrative services fees 148,142
- -------------------------------------------------------------
Accrued distribution fees -- Series II 6,239
- -------------------------------------------------------------
Accrued transfer agent fees 575
- -------------------------------------------------------------
Accrued operating expenses 51,493
- -------------------------------------------------------------
Total liabilities 30,074,056
=============================================================
Net assets applicable to shares outstanding $ 301,651,602
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 336,683,661
- -------------------------------------------------------------
Undistributed net investment income 2,059,227
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (107,826,438)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and foreign
currency contracts 70,735,152
=============================================================
$ 301,651,602
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 290,680,002
_____________________________________________________________
=============================================================
Series II $ 10,971,600
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 18,123,918
_____________________________________________________________
=============================================================
Series II 687,188
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 16.04
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 15.97
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of $24,403,301
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$585,812) $ 4,413,138
- ------------------------------------------------------------
Dividends from affiliated money market funds** 328,857
- ------------------------------------------------------------
Interest 7,723
============================================================
Total investment income 4,749,718
============================================================
EXPENSES:
Advisory fees 1,987,244
- ------------------------------------------------------------
Administrative services fees 574,278
- ------------------------------------------------------------
Custodian fees 249,922
- ------------------------------------------------------------
Distribution fees -- Series II 28,608
- ------------------------------------------------------------
Transfer agent fees 24,320
- ------------------------------------------------------------
Trustees' fees 12,218
- ------------------------------------------------------------
Other 69,953
============================================================
Total expenses 2,946,543
============================================================
Less: Fees waived and expense offset
arrangements (3,812)
============================================================
Net expenses 2,942,731
============================================================
Net investment income 1,806,987
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS AND FUTURES
CONTRACTS:
Net realized gain (loss) from:
Investment securities 12,770,314
- ------------------------------------------------------------
Foreign currencies 308,021
- ------------------------------------------------------------
Futures contracts (94,909)
============================================================
12,983,426
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (net of change in
estimated tax on foreign investments held
of $2,150 - Note 1E) 56,984,388
============================================================
Foreign currencies (24,009)
============================================================
56,960,379
============================================================
Net gain from investment securities, foreign
currencies, foreign currency contracts and
futures contracts 69,943,805
============================================================
Net increase in net assets resulting from
operations $71,750,792
____________________________________________________________
============================================================
</Table>
** Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,806,987 $ 1,333,844
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts 12,983,426 (39,275,081)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and foreign
currency contracts 56,960,379 (1,847,384)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 71,750,792 (39,788,621)
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,397,568) (1,721,606)
- ------------------------------------------------------------------------------------------
Series II (32,274) (128,621)
==========================================================================================
Decrease in net assets resulting from distributions (1,429,842) (1,850,227)
==========================================================================================
Share transactions-net:
Series I (22,955,937) (53,650,629)
- ------------------------------------------------------------------------------------------
Series II 1,955,740 (281,070)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (21,000,197) (53,931,699)
==========================================================================================
Net increase (decrease) in net assets 49,320,753 (95,570,547)
==========================================================================================
Net assets:
Beginning of year 252,330,849 347,901,396
==========================================================================================
End of year (including undistributed net investment income
of $2,059,227 and $1,371,560 for 2003 and 2002,
respectively) $301,651,602 $252,330,849
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. International 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
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. 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.
The Fund's investment objective is to provide long-term growth of capital.
Companies are listed in the Schedule of Investments based on the country in
which they are organized.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. INTERNATIONAL GROWTH FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities (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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to subject to market risk with respect
to the value of the contracts and continue to be required to maintain the
margin deposits on the futures contracts.
H. 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.
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 AIM at the annual rate of 0.75% of the first
$250 million of the Fund's average daily net assets, plus 0.70% of the Fund's
average daily net assets in excess of $250 million. AIM has voluntarily agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
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 expense limitations
may be modified or discontinued with approval of Board of Trustees without
further notice to investors. For the year ended December 31, 2003, AIM waived
fees of $3,809.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $574,278 for such services
of which AIM retained $71,188 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $27,528 for
such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $28,608.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. INTERNATIONAL GROWTH FUND
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 and
cash collateral from securities lending transactions in affiliated money market
funds. Each day the prior day's balance invested in the affiliated money market
fund is redeemed in full and a new purchase amount is submitted to invest the
current day's available cash and/or cash collateral received from securities and
lending transactions. The table below shows the transactions in and earnings
from investments in affiliated money market funds for period ending December 31,
2003.
<Table>
<Caption>
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $4,762,632 $321,116,636 $(322,475,471) $ -- $3,403,797 $82,050 $ --
- -----------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 4,762,632 321,116,636 (322,475,471) -- 3,403,797 79,075 --
=============================================================================================================================
Subtotal $9,525,264 $642,233,272 $(644,950,942) $ -- $6,807,594 $161,125 $ --
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
<Table>
<Caption>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $21,993,496 $ 95,345,067 $(104,218,798) $ -- $13,119,765 $85,321 $ --
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 21,993,496 95,213,842 (104,087,573) -- 13,119,764 82,411 --
===============================================================================================================================
Subtotal $43,986,991 $190,558,909 $(208,306,371) $ -- $26,239,529 $167,732 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total $53,512,255 $832,792,181 $(853,257,313) $ -- $33,047,123 $328,857 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$266,519.
NOTE 4--EXPENSES OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$3 under an expense offset arrangement which resulted in a reduction of the
Fund's total expenses of $3.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $4,221
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
AIM V.I. INTERNATIONAL GROWTH FUND
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of 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, 2003, securities with an aggregate value of $24,403,301 were
on loan to brokers. The loans were secured by cash collateral of $26,239,529
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2003, the Fund received dividends on cash
collateral net of fees paid to counterparties of $167,732 for securities lending
transactions.
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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------
Distributions paid from Ordinary
income $1,429,842 $1,850,227
_______________________________________________________________
===============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 2,121,862
- -------------------------------------------------------------
Unrealized appreciation -- investments 69,374,238
- -------------------------------------------------------------
Temporary book/tax differences (62,634)
- -------------------------------------------------------------
Capital loss carryforward (106,465,525)
- -------------------------------------------------------------
Shares of beneficial interest 336,683,661
=============================================================
Total net assets $ 301,651,602
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales. The tax-basis unrealized appreciation on investments amount
includes appreciation on foreign currencies of $25,820.
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 deferral of trustee compensation and
retirement plan expenses.
The Fund utilized $6,383,607 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 for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2005 $ 1,015,513
- -----------------------------------------------------------
December 31, 2006 342,962
- -----------------------------------------------------------
December 31, 2007 1,051,669
- -----------------------------------------------------------
December 31, 2009 58,166,120
- -----------------------------------------------------------
December 31, 2010 45,889,261
===========================================================
Total capital loss carryforward $106,465,525
___________________________________________________________
===========================================================
</Table>
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, 2003 was $197,071,060 and $213,093,076, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $72,128,655
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (2,780,237)
============================================================
Net unrealized appreciation of investment
securities $69,348,418
____________________________________________________________
============================================================
Cost of investments for tax purposes is
$258,562,423.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions on December 31, 2003, undistributed net investment income was
increased by $310,522, undistributed net realized gains (losses) decreased by
$310,522. This reclassification had no effect on the net assets of the Fund.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2003 2002
---------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 28,817,915 $ 368,653,132 90,761,628 $ 1,234,674,746
- ----------------------------------------------------------------------------------------------------------------------------
Series II 25,266,333 310,191,013 51,994,896 669,355,587
============================================================================================================================
Issued as reinvestment of dividends:
Series I 90,455 1,397,568 139,401 1,721,606
- ----------------------------------------------------------------------------------------------------------------------------
Series II 2,098 32,274 10,449 128,621
============================================================================================================================
Reacquired:
Series I (30,602,695) (393,006,637) (94,385,310) (1,290,046,981)
- ----------------------------------------------------------------------------------------------------------------------------
Series II (24,962,888) (308,267,547) (51,648,761) (669,765,278)
============================================================================================================================
(1,388,782) $ (21,000,197) (3,127,697) $ (53,931,699)
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.49 $ 14.91 $ 20.12 $ 29.29 $ 19.62
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09(a) 0.06(a) 0.08(a) 0.18 0.08(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.54 (2.40) (4.83) (7.88) 10.59
=========================================================================================================================
Total from investment operations 3.63 (2.34) (4.75) (7.70) 10.67
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.08) (0.08) (0.05) (0.06) (0.19)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.41) (1.41) (0.81)
=========================================================================================================================
Total distributions (0.08) (0.08) (0.46) (1.47) (1.00)
=========================================================================================================================
Net asset value, end of period $ 16.04 $ 12.49 $ 14.91 $ 20.12 $ 29.29
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 29.06% (15.67)% (23.53)% (26.40)% 55.04%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $290,680 $247,580 $347,528 $437,336 $454,060
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets: 1.10%(c) 1.09% 1.05% 1.02% 0.97%
=========================================================================================================================
Ratio of net investment income to average net assets 0.69%(c) 0.41% 0.46% 0.83% 0.38%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 79% 71% 109% 88% 97%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not reflect charges at
the separate account level which if included would reduce total returns
for all periods shown.
(c) Ratios are based on average daily net assets of $254,591,727.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------------
SEPTEMBER 19, 2001
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
----------------------- DECEMBER 31,
2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.45 $ 14.90 $14.42
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06(a) 0.03(a) 0.01(a)
- -------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.51 (2.40) 0.93
=============================================================================================================
Total from investment operations 3.57 (2.37) 0.94
=============================================================================================================
Less distributions:
Dividends from net investment income (0.05) (0.08) (0.05)
- -------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.41)
=============================================================================================================
Total distributions (0.05) (0.08) (0.46)
=============================================================================================================
Net asset value, end of period $ 15.97 $ 12.45 $14.90
_____________________________________________________________________________________________________________
=============================================================================================================
Total return(b) 28.68% (15.89)% 6.63%
_____________________________________________________________________________________________________________
=============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,972 $ 4,751 $ 374
_____________________________________________________________________________________________________________
=============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.35%(c) 1.31% 1.30%(d)
- -------------------------------------------------------------------------------------------------------------
Without fee waivers 1.35%(c) 1.34% 1.30%(d)
=============================================================================================================
Ratio of net investment income to average net assets 0.44%(c) 0.19% 0.22%(d)
_____________________________________________________________________________________________________________
=============================================================================================================
Portfolio turnover rate(e) 79% 71% 109%
_____________________________________________________________________________________________________________
=============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $11,443,075.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
AIM V.I. INTERNATIONAL GROWTH FUND
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. INTERNATIONAL GROWTH FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
International Growth Fund, formerly AIM V.I. International Equity Fund, a series
of shares of beneficial interest of AIM Variable Insurance Funds, including the
schedule of investments as of December 31, 2003, the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the years or periods in the five year period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. International Growth Fund as of December 31, 2003, 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 years or periods in the five year period then ended in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. INTERNATIONAL GROWTH FUND
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED) (CONTINUED)
For the fiscal year ended December 31, 2003, the amount of income received by
the fund from sources within foreign countries and possessions of the United
States was $0.2649 per share (representing a total of $5,001,211). The amount of
taxes paid by the fund to such countries for the fiscal year ended December 31,
2003 was $0.0303 per share (representing a total of $572,050). The following
table provides a breakdown by country of ordinary income received and foreign
taxes paid by the Fund during the fiscal year ended December 31, 2003.
<Table>
<Caption>
FOREIGN
COUNTRY GROSS INCOME % TAX PAID %
- ----------------------------------------------------------------------------------
Australia 3.10% 1.62%
- ----------------------------------------------------------------------------------
Brazil 0.89% 0.44%
- ----------------------------------------------------------------------------------
Canada 5.83% 8.15%
- ----------------------------------------------------------------------------------
Denmark 0.38% 0.53%
- ----------------------------------------------------------------------------------
France 12.74% 14.96%
- ----------------------------------------------------------------------------------
Germany 5.00% 6.93%
- ----------------------------------------------------------------------------------
Hong Kong 2.40% 0.00%
- ----------------------------------------------------------------------------------
India 0.83% 0.00%
- ----------------------------------------------------------------------------------
Ireland 4.31% 0.00%
- ----------------------------------------------------------------------------------
Israel 0.88% 1.59%
- ----------------------------------------------------------------------------------
Italy 10.54% 14.75%
- ----------------------------------------------------------------------------------
Japan 5.70% 5.33%
- ----------------------------------------------------------------------------------
Mexico 1.00% 0.00%
- ----------------------------------------------------------------------------------
Portugal 0.93% 1.51%
- ----------------------------------------------------------------------------------
South Korea 3.26% 5.02%
- ----------------------------------------------------------------------------------
Spain 7.77% 10.87%
- ----------------------------------------------------------------------------------
Sweden 1.72% 2.24%
- ----------------------------------------------------------------------------------
Switzerland 1.03% 1.44%
- ----------------------------------------------------------------------------------
Taiwan 0.46% 0.88%
- ----------------------------------------------------------------------------------
United Kingdom 24.96% 23.74%
- ----------------------------------------------------------------------------------
Subtotal 93.73% 100.00%
==================================================================================
United States 6.27% 0.00%
==================================================================================
Total 100.00% 100.00%
__________________________________________________________________________________
==================================================================================
</Table>
AIM V.I. INTERNATIONAL GROWTH FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and
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
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Administaff, Discovery
Trustee Group, Inc. (government affairs company) and Global Education Fund
Texana Timber LP (sustainable forestry company) (non-profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. INTERNATIONAL GROWTH FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations None
Trustee Hines Interests Limited Partnership (real estate
development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General Counsel,
Liberty Financial Companies, Inc.; and Senior Vice
President and General Counsel, Liberty Funds Group,
LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects,, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and President, N/A
Vice President Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 0.00% is eligible for the dividends received deduction for
corporations.
AIM V.I. INTERNATIONAL GROWTH FUND
AIM V.I. LARGE CAP GROWTH FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. LARGE CAP GROWTH FUND seeks to
provide long-term growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. LARGE CAP GROWTH FUND
MARKET CONDITIONS PROVIDE BENEFICIAL YOUR FUND
BACKDROP FOR LAUNCH OF NEW FUND
As of December 31, 2003, we had
AIM V.I. Large Cap Growth Fund began the fourth quarter of 2003. The job assembled a portfolio of 62 stocks. For
operations on August 29, 2003. From that market, while improving, continued to be the initial period, the fund was largely
date through December 31, 2003, Series I weak, however, as the nation's invested in three sectors. Almost 34% of
shares returned 9.16%, and Series II unemployment rate stood at 5.7% at the the portfolio was in information
shares returned 9.11%. In comparison, close of the year. technology, 20% was in health care, and
for the four-month period from August about 18% in consumer discretionary.
31, 2003, through December 31, 2003, the During the reporting period, the Most of the remaining 18% was invested
S&P 500--Registered Trademark-- Index Federal Reserve (the Fed) kept the in financials and industrials, with
returned 10.98%, the Russell short-term federal funds rate at 1.00%, telecommunications services less than 3%
1000--Registered Trademark-- Growth its lowest level since 1958. In October, and consumer staples less than 2%.
Index returned 9.23%, and the Lipper the Fed reported that economic expansion
Large-Cap Growth Fund Index returned had increased and consumer spending was The information technology, consumer
7.75%. For a period of only four months, generally stronger, although the job discretionary and industrials sectors
an assessment of why the fund market remained weak. are considered economically sensitive
overperformed or underperformed its sectors, sectors that react more quickly
benchmark indexes would likely be The S&P 500 Index declined in to an improving economy because of
speculative; longer-term performance is September, but rallied during the last increased spending by businesses and
needed. three months of 2003. All sectors of the consumers. Not surprisingly, two of
index posted gains for the final quarter these sectors, information technology
MARKET CONDITIONS of the year. Materials, energy, and consumer discretionary, were among
industrials and consumer discretionary the three top-performing sectors in the
Amid a backdrop of generally improving were among the better-performing sectors S&P 500 Index for the year ended
economic conditions, the S&P 500 Index while utilities, consumer staples and December 31, 2003.
posted gains for the reporting period health care were among the
ended December 31, 2003. The nation's weakest-performing sectors in the fourth Throughout the four-month period of
gross domestic product, generally quarter. operation, we selected stocks on the
considered the broadest measure of basis of our analysis of each individual
economic activity, expanded at an stock. Our process is designed to keep
annualized rate of 8.2% in the third us away from upcoming earnings
quarter and 4.0% in disappointments based on our
quantitative and qualitative filters
which focus on
</Table>
<Table>
<Caption>
===================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- -----------------------------------------------------------------------------------------------------------------------------------
1. Intel Corp. 4.7% 1. Health Care Equipment 9.2% Cumulative returns 8/29/03-12/31/03,**
2. Cisco Systems, Inc. 4.6 2. Systems Software 8.9 excluding product issuer charges
3. UnitedHealth Group Inc. 4.1 3. Communications Equipment 6.9
4. Microsoft Corp. 3.5 4. Semiconductors 6.2 Series I Shares 9.16%
5. Cendant Corp. 2.9 5. Diversified Commercial Series II Shares 9.11
6. Nextel Communications, Services 4.4 S&P 500 Index 10.98
Inc.-Class A 2.8 6. Managed Health Care 4.1 (Broad Market Index)
7. Boston Scientific Corp. 2.7 7. Consumer Finance 3.9 Russell 1000 Growth Index 9.23
8. VERITAS Software Corp. 2.7 8. Specialty Stores 3.2 (Style-Specific Index)
9. Yahoo! Inc. 2.6 9. Computer Storage & Lipper Large-Cap Growth Fund 7.75
10. Zimmer Holdings, Inc. 2.6 Peripherals 3.2 Index (Peer Group Index)
10. Thrifts & Mortgage Finance 3.1
**Index Returns are from 8/31/03.
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 62
TOTAL NET ASSETS $1.1 million
===================================================================================================================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
</Table>
<Table>
<Caption>
AIM V.I. LARGE CAP GROWTH FUND
factors such as earnings revisions, ======================================== ABOUT INDEXES USED IN THIS REPORT
sustainability and valuation. PORTFOLIO MANAGEMENT TEAM The unmanaged Standard & Poor's
AS OF 12/31/03 Composite Index of 500 Stocks (the S&P
Two stocks among the top five GEOFFREY V. KEELING 500--Registered Trademark-- Index) is an
contributors to fund performance for the ROBERT L. SHOSS index of common stocks frequently used
period were Cisco and International Game ASSISTED BY THE LARGE CAP GROWTH TEAM as a general measure of U.S. stock
Technology. Cisco is the dominant ======================================== market performance.
provider of equipment that connects
networks and powers the Internet. In its Current performance may be lower or The unmanaged Russell
earnings report released in November higher than the performance data quoted. 1000--Registered Trademark-- Growth
2003, the company reported net sales of Past performance cannot guarantee Index is a subset of the unmanaged
$5.1 billion for the quarter. This comparable future results. Due to Russell 1000--Registered Trademark--
represented an increase of 8.5% over the significant market volatility, results Index, which represents the performance
previous quarter. of an investment made today may differ of the stocks of large-capitalization
substantially from the historical companies; the Growth subset measures
International Game Technology performance shown. Please see your the performance of Russell 1000
produces slot machines and other types financial advisor for more current companies with higher price/book ratios
of gaming machines. Growth in the casino performance. and higher forecasted growth values.
industry worldwide, a strong balance
sheet, and increasing market share made The fund's performance figures are The unmanaged Lipper Large-Cap Growth
this company a strong contributor to the historical, and they reflect fund Fund Index represents an average of the
fund this year. expenses, the reinvestment of performance of the 30 largest
distributions and changes in net asset large-capitalization core equity funds
Amgen and Wyeth were among the stocks value. Performance data quoted represent tracked by Lipper, Inc., an independent
that detracted from fund performance for past performance, and the investment mutual fund performance monitor.
the period. Biotech giant Amgen uses return and principal value will
cellular and molecular biology to target fluctuate, so an investor's shares, when A direct investment cannot be made in
cancer, inflammatory disorders and redeemed, may be worth more or less than an index. Unless otherwise indicated,
metabolic and neurodegenerative their original cost. index results include reinvested
diseases. Wyeth is a leading maker of dividends, and they do not reflect sales
pharmaceuticals, home health care AIM Variable Insurance Funds are charges. Performance of an index of
products and animal health care offered through insurance company funds reflects fund expenses;
products. Because of our concerns separate accounts to fund variable performance of a market index does not.
regarding their future earnings growth, annuity contracts and variable life
we sold the fund's holdings in both of insurance policies, and through certain Industry classifications used in this
these companies. pension or retirement plans. Performance report are generally according to the
figures given represent the fund and are Global Industry Classification Standard,
IN CLOSING not intended to reflect actual variable which was developed by and is the
product values. They do not reflect exclusive property and a service mark of
With just four months of operation, we sales charges, expenses and fees at the Morgan Stanley Capital International
are pleased to report a solid beginning. separate-account level. Sales charges, Inc. and Standard & Poor's.
We believe this can be attributed to an expenses and fees, which are determined
improving economy and our fund's by the product issuers, will vary and A description of the policies and
portfolio, which was heavily tilted will lower the total return. procedures that the Fund uses to
toward economically sensitive holdings. determine how to vote proxies relating
Had the advisor not waived fees to portfolio securities is available
and/or reimbursed expenses, returns without charge, upon request, by calling
would have been lower. 800-959-4246, or on the AIM Web site,
AIMinvestments.com.
PRINCIPAL RISKS OF INVESTING IN THE FUND
The fund may invest up to 25% of its
total assets in foreign securities.
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.
VILCG-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.91%
AEROSPACE & DEFENSE-1.13%
United Technologies Corp. 130 $ 12,320
==================================================================
APPAREL RETAIL-1.74%
Gap, Inc. (The) 820 19,032
==================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.63%
Coach, Inc.(a) 470 17,742
==================================================================
APPLICATION SOFTWARE-1.10%
SAP A.G.-ADR (Germany) 290 12,052
==================================================================
BIOTECHNOLOGY-2.06%
Genentech, Inc.(a) 240 22,457
==================================================================
CASINOS & GAMING-2.55%
International Game Technology 780 27,846
==================================================================
COMMUNICATIONS EQUIPMENT-6.95%
Cisco Systems, Inc.(a) 2,050 49,794
- ------------------------------------------------------------------
Corning Inc.(a) 760 7,927
- ------------------------------------------------------------------
Juniper Networks, Inc.(a) 640 11,955
- ------------------------------------------------------------------
QLogic Corp.(a) 120 6,192
==================================================================
75,868
==================================================================
COMPUTER HARDWARE-2.36%
Dell Inc.(a) 760 25,810
==================================================================
COMPUTER STORAGE & PERIPHERALS-3.21%
EMC Corp.(a) 2,000 25,840
- ------------------------------------------------------------------
Network Appliance, Inc.(a) 450 9,238
==================================================================
35,078
==================================================================
CONSUMER FINANCE-3.90%
American Express Co. 250 12,058
- ------------------------------------------------------------------
Capital One Financial Corp. 110 6,742
- ------------------------------------------------------------------
MBNA Corp. 260 6,461
- ------------------------------------------------------------------
SLM Corp. 460 17,333
==================================================================
42,594
==================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.37%
Apollo Group, Inc.-Class A(a) 230 15,640
- ------------------------------------------------------------------
Cendant Corp.(a) 1,440 32,069
==================================================================
47,709
==================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.83%
Rockwell Automation, Inc. 560 19,936
==================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
FOOTWEAR-0.69%
NIKE, Inc.-Class B 110 $ 7,531
==================================================================
GENERAL MERCHANDISE STORES-0.81%
Dollar General Corp. 420 8,816
==================================================================
HEALTH CARE EQUIPMENT-9.23%
Boston Scientific Corp.(a) 810 29,776
- ------------------------------------------------------------------
Guidant Corp. 380 22,876
- ------------------------------------------------------------------
St. Jude Medical, Inc.(a) 130 7,976
- ------------------------------------------------------------------
Stryker Corp. 140 11,901
- ------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 400 28,160
==================================================================
100,689
==================================================================
HEALTH CARE SERVICES-2.48%
Caremark Rx, Inc.(a) 410 10,385
- ------------------------------------------------------------------
IMS Health Inc. 670 16,656
==================================================================
27,041
==================================================================
HEALTH CARE SUPPLIES-0.78%
Alcon, Inc. (Switzerland) 140 8,476
==================================================================
HOME ENTERTAINMENT SOFTWARE-0.66%
Electronic Arts Inc.(a) 150 7,167
==================================================================
HOME IMPROVEMENT RETAIL-2.79%
Home Depot, Inc. (The) 420 14,906
- ------------------------------------------------------------------
Lowe's Cos., Inc. 280 15,509
==================================================================
30,415
==================================================================
HOUSEWARES & SPECIALTIES-1.77%
Fortune Brands, Inc. 270 19,302
==================================================================
INDUSTRIAL CONGLOMERATES-1.64%
3M Co. 210 17,856
==================================================================
INDUSTRIAL MACHINERY-0.66%
Dover Corp. 180 7,155
==================================================================
INTERNET RETAIL-2.51%
Amazon.com, Inc.(a) 520 27,373
==================================================================
INTERNET SOFTWARE & SERVICES-2.61%
Yahoo! Inc.(a) 630 28,457
==================================================================
INVESTMENT BANKING & BROKERAGE-0.88%
Ameritrade Holding Corp.(a) 680 9,568
==================================================================
IT CONSULTING & OTHER SERVICES-0.89%
Accenture Ltd.-Class A (Bermuda)(a) 370 9,738
==================================================================
</Table>
AIM V.I. LARGE CAP GROWTH FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
MANAGED HEALTH CARE-4.10%
UnitedHealth Group Inc. 770 $ 44,799
==================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.00%
Citigroup Inc. 450 21,843
==================================================================
PERSONAL PRODUCTS-1.79%
Avon Products, Inc. 290 19,572
==================================================================
PHARMACEUTICALS-1.64%
Mylan Laboratories Inc. 440 11,114
- ------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 120 6,805
==================================================================
17,919
==================================================================
REGIONAL BANKS-0.25%
Popular, Inc. (Puerto Rico) 60 2,696
==================================================================
RESTAURANTS-0.67%
Starbucks Corp.(a) 220 7,273
==================================================================
SEMICONDUCTOR EQUIPMENT-1.01%
Applied Materials, Inc.(a) 490 11,001
==================================================================
SEMICONDUCTORS-6.24%
Altera Corp.(a) 350 7,945
- ------------------------------------------------------------------
Analog Devices, Inc. 190 8,674
- ------------------------------------------------------------------
Intel Corp. 1,600 51,520
==================================================================
68,139
==================================================================
SPECIALTY STORES-3.23%
AutoNation, Inc.(a) 350 6,430
- ------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------
SPECIALTY STORES-(CONTINUED)
Bed Bath & Beyond Inc.(a) 250 $ 10,838
- ------------------------------------------------------------------
Staples, Inc.(a) 660 18,018
==================================================================
35,286
==================================================================
SYSTEMS SOFTWARE-8.88%
Adobe Systems Inc. 280 11,004
- ------------------------------------------------------------------
Microsoft Corp. 1,370 37,730
- ------------------------------------------------------------------
Oracle Corp.(a) 560 7,392
- ------------------------------------------------------------------
Symantec Corp.(a) 320 11,088
- ------------------------------------------------------------------
VERITAS Software Corp.(a) 800 29,728
==================================================================
96,942
==================================================================
THRIFTS & MORTGAGE FINANCE-3.07%
Golden West Financial Corp. 170 17,542
- ------------------------------------------------------------------
New York Community Bancorp, Inc. 420 15,981
==================================================================
33,523
==================================================================
WIRELESS TELECOMMUNICATION SERVICES-2.80%
Nextel Communications, Inc.-Class A(a) 1,090 30,585
==================================================================
Total Common Stocks & Other Equity
Interests (Cost $950,642) 1,057,606
==================================================================
TOTAL INVESTMENTS-96.91% (Cost $950,642) 1,057,606
==================================================================
OTHER ASSETS LESS LIABILITIES-3.09% 33,769
==================================================================
NET ASSETS-100.00% $1,091,375
__________________________________________________________________
==================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. LARGE CAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $950,642) $1,057,606
- ------------------------------------------------------------
Cash 7,081
- ------------------------------------------------------------
Receivables for:
Dividends 151
- ------------------------------------------------------------
Amount due from advisor 44,604
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 1,076
============================================================
Total assets 1,110,518
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 3,257
- ------------------------------------------------------------
Deferred compensation and retirement plans 1,076
- ------------------------------------------------------------
Accrued administrative services fees 666
- ------------------------------------------------------------
Accrued distribution fees -- Series II 78
- ------------------------------------------------------------
Accrued transfer agent fees 25
- ------------------------------------------------------------
Accrued operating expenses 14,041
============================================================
Total liabilities 19,143
============================================================
Net assets applicable to shares outstanding $1,091,375
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 998,284
- ------------------------------------------------------------
Undistributed net investment income (loss) (1,131)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (12,742)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 106,964
============================================================
$1,091,375
____________________________________________________________
============================================================
NET ASSETS:
Series I $ 545,828
____________________________________________________________
============================================================
Series II $ 545,547
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 50,075
____________________________________________________________
============================================================
Series II 50,050
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 10.90
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 10.90
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the period August 29, 2003 (date operations commenced) through December 31,
2003.
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3) $ 1,900
- -----------------------------------------------------------
Interest 148
===========================================================
Total investment income 2,048
===========================================================
EXPENSES:
Advisory fees 2,683
- -----------------------------------------------------------
Administrative services fees 17,790
- -----------------------------------------------------------
Custodian fees 5,577
- -----------------------------------------------------------
Distribution fees -- Series II 447
- -----------------------------------------------------------
Transfer agent fees 25
- -----------------------------------------------------------
Trustees' fees 3,534
- -----------------------------------------------------------
Reports to shareholders 8,264
- -----------------------------------------------------------
Professional fees 13,700
- -----------------------------------------------------------
Other 458
===========================================================
Total expenses 52,478
===========================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangements (47,563)
- -----------------------------------------------------------
Net expenses 4,915
===========================================================
Net investment income (loss) (2,867)
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain (loss) from investment
securities (12,742)
- -----------------------------------------------------------
Change in net unrealized appreciation of
investment securities 106,964
- -----------------------------------------------------------
Net gain from investment securities 94,222
===========================================================
Net increase in net assets resulting from
operations $ 91,355
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. LARGE CAP GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period August 29, 2003 (date operations commenced) through December 31,
2003.
<Table>
<Caption>
2003
- --------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,867)
- --------------------------------------------------------------------------
Net realized gain (loss) from investment securities (12,742)
- --------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 106,964
==========================================================================
Net increase in net assets resulting from operations 91,355
==========================================================================
Distributions to shareholders from net investment income:
Series I (785)
- --------------------------------------------------------------------------
Series II (520)
==========================================================================
Decrease in net assets resulting from distributions (1,305)
==========================================================================
Share transactions-net:
Series I 500,795
- --------------------------------------------------------------------------
Series II 500,530
==========================================================================
Net increase (decrease) in net assets resulting from
share transactions 1,001,325
==========================================================================
Net increase in net assets 1,091,375
==========================================================================
NET ASSETS:
Beginning of period --
==========================================================================
End of period (including undistributed net investment
income (loss) of $(1,131)) $1,091,375
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. LARGE CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Large Cap 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
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. 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. The Fund commenced operations August 29,
2003.
The Fund's primary investment objective is to achieve long-term growth of
capital. Each company listed in the Schedule of Investments is organized in the
United States of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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
AIM V.I. LARGE CAP GROWTH FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. 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.
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 AIM at the annual rate of 0.75% of the first $1
billion of the Fund's average daily net assets, 0.70% of the next $1 billion,
plus 0.625% of the Fund's average daily net assets in excess of $2 billion. AIM
has contractually agreed to waive fees and/or reimburse expenses of Series I and
Series II shares to the extent necessary to limit the expenses (excluding Rule
12b-1 plan fees, if any, interest, taxes, fund merger and reorganization
expenses, extraordinary items, including other items designated as such by the
Board of Trustees and increases in expenses due to expense offset arrangements,
if any) of each Series to 1.30% through December 31, 2003. 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. For the period
August 29, 2003 (date operations commenced) through December 31, 2003, AIM
waived fees of $2,683 and reimbursed expenses of $44,604.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the period August 29, 2003 (date operations commenced) through December 31,
2003, the Fund paid AIM $17,790 for such services, of which AIM retained $17,123
for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the period August 29, 2003 (date operations commenced) through
December 31, 2003, AISI retained no fees for such services.
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
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the period
August 29, 2003 (date operations commenced) through December 31, 2003, the
Series II shares paid $269 after AIM Distributors waived plan fees of $178.
Certain officers and trustees of the Trust are officers of AIM, AISI and/or
AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expense under expense offset arrangements are comprised of custodian
credits resulting from periodic overnight cash balances at the custodian. For
the year ended December 31, 2003, the Fund received reductions in custodian fees
of $98 under an expense offset arrangement, which resulted in a reduction of the
Fund's total expenses of $98.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
AIM V.I. LARGE CAP GROWTH 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 participate in a retirement plan and receive benefits under such
plan.
During the period August 29, 2003 (date operations commenced) through
December 31, 2003, the Fund paid legal fees of $624 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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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, 2003, 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 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 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 period August 29, 2003 (date
operations commenced) through December 31, 2003 was as follows:
<Table>
<Caption>
2003
- -----------------------------------------------------------
Distributions paid from ordinary income $1,305
___________________________________________________________
===========================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 106,516
- ------------------------------------------------------------
Temporary book/tax differences (1,131)
- ------------------------------------------------------------
Capital loss carryforward (5,215)
- ------------------------------------------------------------
Post-October capital loss deferral (7,079)
- ------------------------------------------------------------
Shares of beneficial interest 998,284
============================================================
Total net assets $1,091,375
____________________________________________________________
============================================================
</Table>
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 the tax deferral of losses
on wash sales.
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 deferral of trustee compensation.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2011 $5,215
___________________________________________________________
===========================================================
</Table>
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 period August
29, 2003 (date operations commenced) through December 31, 2003 was $1,337,392
and $373,996, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $110,114
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (3,598)
===========================================================
Net unrealized appreciation of investment
securities $106,516
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $951,090.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of stock issuance costs on
December 31, 2003, undistributed net investment income was increased by $3,041
and shares of beneficial interest decreased by $3,041. This reclassification had
no effect on the net assets of the Fund.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------
THE PERIOD
AUGUST 29, 2003
(DATE OPERATIONS
COMMENCED)
TO DECEMBER 31,
2003
-----------------------
SHARES AMOUNT
- -------------------------------------------------------------------------------------
Sold:
Series I 50,001 $ 500,010
- -------------------------------------------------------------------------------------
Series II 50,001 500,010
=====================================================================================
Issued as reinvestment of dividends:
Series I 74 785
- -------------------------------------------------------------------------------------
Series II 49 520
=====================================================================================
100,125 $1,001,325
_____________________________________________________________________________________
=====================================================================================
</Table>
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding during the period August 29, 2003 (date operations commenced)
through December 31, 2003.
<Table>
<Caption>
SERIES I
----------------
AUGUST 29, 2003
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2003
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.95
================================================================================
Total from investment operations 0.92
================================================================================
Less distributions from net investment income (0.02)
================================================================================
Net asset value, end of period $10.90
================================================================================
Total return(a) 9.16%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 546
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.33%(b)
- --------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 14.54%(b)
________________________________________________________________________________
================================================================================
Ratio of net investment income (loss) to average net assets (0.73)%(b)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(c) 37%
________________________________________________________________________________
================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(b) Ratios are annualized and based on average net assets of $522,362.
(c) Not annualized for periods less than one year.
AIM V.I. LARGE CAP GROWTH FUND
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
---------------
AUGUST 29, 2003
(DATE
OPERATIONS
COMMENCED)
TO DECEMBER 31,
2003
- -------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)
- -------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.94
===============================================================================
Total from investment operations 0.91
===============================================================================
Less distributions from net investment income (0.01)
===============================================================================
Net asset value, end of period $ 10.90
_______________________________________________________________________________
===============================================================================
Total return(a) 9.11%
_______________________________________________________________________________
===============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 546
_______________________________________________________________________________
===============================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.48%(b)
- -------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 14.79%(b)
_______________________________________________________________________________
===============================================================================
Ratio of net investment income (loss) to average net assets (0.88)%(b)
_______________________________________________________________________________
===============================================================================
Portfolio turnover rate(c) 37%
_______________________________________________________________________________
===============================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(b) Ratios are annualized and based on average daily net assets of $522,226.
(c) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
AIM V.I. LARGE CAP GROWTH FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. LARGE CAP GROWTH FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Large Cap Growth Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations, the statement of changes in net assets, and
the financial highlights for the period August 29, 2003 (commencement of
operations) through December 31, 2003. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Large Cap Growth Fund as of December 31, 2003, the results of its
operations, the changes in its net assets, and the financial highlights for the
period August 29, 2003 (commencement of operations) through December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. LARGE CAP GROWTH FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and Fund Management
Company (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. and
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
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance investment company);
Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Group, Administaff, Discovery
Trustee Inc. (government affairs company) and Texana Timber Global Education Fund
LP (sustainable forestry company) (non-profit)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. LARGE CAP GROWTH FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations None
Trustee Hines Interests Limited Partnership (real estate
development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General Counsel,
Liberty Financial Companies, Inc.; and Senior Vice
President and General Counsel, Liberty Funds Group,
LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and President, N/A
Vice President Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 100% is eligible for the dividends received deduction for
corporations.
AIM V.I. LARGE CAP GROWTH FUND
AIM V.I. MID CAP CORE EQUITY FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. MID CAP CORE EQUITY FUND seeks long-term growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. MID CAP CORE EQUITY FUND
FUND POSTS DOUBLE-DIGIT GAINS performed large-cap stocks for the year.
FOR FISCAL YEAR The performance of growth and value
stocks was similar, although mid-cap
For the year ended December 31, 2003, considered the broadest measure of growth stocks generally outperformed
AIM V.I. Mid Cap Core Equity Fund, economic activity, expanded at an their value counterparts.
Series I and Series II shares, posted annualized rate of 3.1% in the second
returns of 27.31% and 27.05%, quarter, 8.2% in the third quarter, and YOUR FUND
respectively. The fund slightly 4.0% in the fourth quarter of 2003. The
underperformed the S&P 500--Registered job market, while improving, continued While the fund continued to be
Trademark-- Index, frequently cited as a to be weak, however, as the nation's defensively positioned in 2003, we
measure of the performance of the U.S. unemployment rate stood at 5.7% at the increased the portfolio's weighting in
stock market in general, which returned close of the year. sectors, such as industrials and
28.67% over the same period. It also information technology, that were more
lagged the Lipper Mid-Cap Core Fund For the first five months of the likely to benefit from an improving
Index and the Russell Midcap Index, year, the Federal Reserve (the Fed) kept economy and increased business spending.
which returned 36.58% and 40.06%, the short-term federal funds rate at At the close of the reporting period,
respectively, for the year. The fund 1.25%. On June 25, 2003, it reduced that the fund's three largest sector
underperformed its indexes because of rate to 1.00%, its lowest level since weightings were information technology,
its more defensive stock holdings and 1958. At the time, the Fed said it industrials and consumer discretionary.
its relatively large cash position. favored a more expansive monetary policy These also were the sectors that had the
because the economy had not yet most positive impact on fund performance
MARKET CONDITIONS exhibited sustainable growth. By for the year.
October, the Fed reported that economic
Amid a backdrop of generally improving expansion had increased and consumer On the other hand, the fund had
economic conditions, the S&P 500 Index spending was generally stronger, relatively little exposure to the
declined at the beginning of 2003, although the job market remained weak. financials sector, a positioning that
dropping to its lowest level of the year detracted from performance. We tended to
on March 11. The index then rallied, All sectors of the S&P 500 Index avoid stocks in this sector, which is
posting a gain of 40.86% from its low recorded gains for the fiscal year. more economically sensitive, because we
through the end of the reporting period. Information technology, materials and did not expect consumer spending to be
consumer discretionary were the as strong as it was in 2003. In our
During this rally, the United States top-performing sectors while opinion, consumers spent virtually all
and its allies took military action telecommunication services, consumer their tax refunds and savings from
against Iraq and toppled the regime of staples and health care were the mortgage refinancings in the spring.
Saddam Hussein. The nation's gross weakest-performing sectors. Historical precedent suggested spending
domestic product, generally might be more restrained.
Small- and mid-cap stocks generally
out- During the year, we added a number of
stocks in the information technology and
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Computer Associates International, 1. Industrial Machinery 6.0 Total returns 12/31/02-12/31/03,
Inc. 2.7% 2. Electronic Equipment Manufacturers 5.9 excluding product issuer charges
2. International Flavors & 3. Data Processing &
Fragrances Inc. 2.6 Outsourced Services 4.4 Series I Shares 27.31%
3. Brunswick Corp. 2.5 4. Electric Utilities 3.3 Series II Shares 27.05
4. Dover Corp. 2.4 5. Oil & Gas Equipment & Services 3.1 S&P 500 Index 28.67
5. Campbell Soup Co. 2.2 6. Oil & Gas Exploration & Production 2.9 (Broad Market Index)
6. Ceridian Corp. 2.2 7. Health Care Equipment 2.8 Russell Midcap--Registered
7. Apogent Technologies Inc. 2.0 8. Systems Software 2.7 Trademark-- Index 40.06
8. Waters Corp. 2.0 9. Specialty Chemicals 2.6 (Style-Specific Index)
9. IMS Health Inc. 1.9 10. Leisure Products 2.5 Lipper Mid-Cap Core Fund Index 36.58
10. Wisconsin Energy Corp. 1.8 (Peer Group Index)
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 69
TOTAL NET ASSETS $298.0 Million
====================================================================================================================================
</Table>
<Table>
========================================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
RONALD S. SLOAN, LEAD MANAGER
ASSISTED BY THE MID/LARGE-CAP CORE TEAM
========================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
AIM V.I. MID CAP CORE EQUITY FUND
industrials sectors that had the RESULTS OF A $10,000 INVESTMENT
potential to benefit from increased 9/10/01-12/31/03
business spending. We sold a number of Index data from 8/31/01
these stocks after realizing gains.
[LINE CHART]
Stocks that enhanced performance
included Best Buy, a leading consumer
electronics retailer, and Brunswick, a
well-known marketer of leisure products, AIM V.I. AIM V.I. LIPPER
such as pleasure craft. In our opinion, MID CAP MID CAP MID-CAP
Best Buy benefited from an improving CORE EQUITY FUND- RUSSELL MIDCAP CORE EQUITY FUND- CORE FUND S&P 500
product lineup, which has recently SERIES I INDEX SERIES II INDEX INDEX
started to come down in price, and from
problems encountered by one of its
leading competitors. On the other hand, 9/10/2001 10000 10000 10000 10000 10000
we believe Brunswick benefited from 12/31/2001 10738 10306 10722 10295 10175
increased sales of its boats to 03/31/2002 11300 10744 11284 10675 10203
dealerships and by divesting itself of 06/30/2002 10529 9718 10512 9542 8837
some of its less profitable businesses. 09/30/2002 9015 8004 8991 7980 7311
12/31/2002 9547 8638 9521 8506 7927
Detracting from performance was BJ's 03/31/2003 9136 8434 9100 8183 7677
Wholesale Club, a membership warehouse 06/30/2003 10639 9974 10592 9707 8858
club that sells a wide variety of 09/30/2003 11080 10616 11032 10275 9093
products, including groceries, apparel, 12/31/2003 12152 12099 12096 11618 10199
appliances and office equipment. The
company lowered its sales and earnings
estimates for the third and fourth Source: Lipper, Inc.
quarters of 2003 based on uncertainties Past performance cannot guarantee comparable future results.
concerning the economy and consumer
spending. The fund no longer owns the Current performance may be lower or The unmanaged Lipper Mid-Cap Core
stock. higher than the performance data quoted. Fund Index represents an average of the
Past performance cannot guarantee performance of the 30 largest
IN CLOSING comparable future results. Due to mid-capitalization core funds tracked by
significant market volatility, results Lipper, Inc., an independent mutual fund
We are pleased to have provided positive of an investment made today may differ performance monitor.
returns to the fund's shareholders for substantially from the historical
the year ended December 31, 2003, by performance shown. Please see your A direct investment cannot be made in
investing principally in the stocks of financial advisor for more current an index. Unless otherwise indicated,
mid-capitalization companies which we performance. Fund performance figures index results include reinvested
believe are undervalued relative to the are historical, and they reflect fund dividends, and they do not reflect sales
firm's current or projected earnings or expenses, the reinvestment of charges. Performance of an index of
the value of its assets. distributions and changes in net asset funds reflects fund expenses.
value. The fund's investment return and Performance of a market index does not.
---------- principal value will fluctuate, so an
investor's shares, when redeemed, may be Industry classifications used in this
AVERAGE ANNUAL TOTAL RETURNS worth more or less than their original report are generally according to the
- ---------------------------------------- cost. Global Industry Classification Standard,
As of 12/31/03 which was developed by and is the
AIM Variable Insurance Funds are exclusive property and a service mark of
SERIES I SHARES offered through insurance company Morgan Stanley Capital International
Inception (9/10/01) 8.82% separate accounts to fund variable Inc. and Standard & Poor's.
1 Year 27.31 annuity contracts and variable life
insurance policies, and through certain A description of the policies and
SERIES II SHARES pension or retirement plans. Performance procedures that the Fund uses to
Inception (9/10/01) 8.60% figures given represent the fund and are determine how to vote proxies relating
1 Year 27.05 not intended to reflect actual variable to portfolio securities is available
products values. They do not reflect without charge, upon request, by calling
sales charges, expenses and fees at the 800-959-4246, or on the AIM Web site,
separate account level. AIMinvestments.com.
Sales charges, expenses and fees,
which are determined by the product
issuers, will vary and will lower the
total return.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in small and mid-size
companies may involve risks not
associated with investing in more
established companies. Also, small
companies may have business risk,
significant stock price fluctuations and
illiquidity.
ABOUT INDEXES USED IN THIS REPORT
The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P
500) is an index of common stocks
frequently used as a general measure of
U.S. stock market performance.
The unmanaged Russell Midcap Index
represents the performance of the stocks
of domestic mid-capitalization
companies.
VIMCCE-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-83.09%
AEROSPACE & DEFENSE-1.35%
L-3 Communications Holdings, Inc.(a) 78,200 $ 4,016,352
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.35%
V. F. Corp. 93,000 4,021,320
========================================================================
APPLICATION SOFTWARE-0.55%
Cadence Design Systems, Inc.(a) 90,900 1,634,382
========================================================================
COMMERCIAL PRINTING-1.32%
Valassis Communications, Inc.(a) 134,000 3,932,900
========================================================================
COMPUTER HARDWARE-0.98%
Diebold, Inc. 54,000 2,908,980
========================================================================
CONSTRUCTION MATERIALS-0.63%
Martin Marietta Materials, Inc. 39,700 1,864,709
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.40%
Affiliated Computer Services, Inc.-Class A(a) 56,200 3,060,652
- ------------------------------------------------------------------------
Ceridian Corp.(a) 306,000 6,407,640
- ------------------------------------------------------------------------
Certegy Inc. 111,000 3,640,800
========================================================================
13,109,092
========================================================================
DISTRIBUTORS-1.14%
Genuine Parts Co. 102,000 3,386,400
========================================================================
DIVERSIFIED CHEMICALS-0.81%
Engelhard Corp. 81,000 2,425,950
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.86%
Viad Corp. 102,700 2,567,500
========================================================================
ELECTRIC UTILITIES-3.33%
FPL Group, Inc. 28,700 1,877,554
- ------------------------------------------------------------------------
TECO Energy, Inc. 181,800 2,619,738
- ------------------------------------------------------------------------
Wisconsin Energy Corp. 162,000 5,418,900
========================================================================
9,916,192
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.23%
Rockwell Automation, Inc. 83,200 2,961,920
- ------------------------------------------------------------------------
Roper Industries, Inc. 75,000 3,694,500
========================================================================
6,656,420
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-5.87%
Agilent Technologies, Inc.(a) 84,500 2,470,780
- ------------------------------------------------------------------------
Amphenol Corp.-Class A(a) 43,000 2,748,990
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-(CONTINUED)
Mettler-Toledo International Inc.
(Switzerland)(a) 92,600 $ 3,908,646
- ------------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 111,000 2,541,900
- ------------------------------------------------------------------------
Waters Corp.(a) 176,000 5,836,160
========================================================================
17,506,476
========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.73%
Molex Inc.-Class A 74,000 2,172,640
========================================================================
ENVIRONMENTAL SERVICES-1.81%
Republic Services, Inc. 210,000 5,382,300
========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-1.24%
Scotts Co. (The)-Class A(a) 62,600 3,703,416
========================================================================
FOOD RETAIL-2.00%
Kroger Co. (The)(a) 189,100 3,500,241
- ------------------------------------------------------------------------
Safeway Inc.(a) 112,000 2,453,920
========================================================================
5,954,161
========================================================================
FOOTWEAR-1.16%
NIKE, Inc.-Class B 50,500 3,457,230
========================================================================
GENERAL MERCHANDISE STORES-1.10%
Family Dollar Stores, Inc. 91,100 3,268,668
========================================================================
HEALTH CARE DISTRIBUTORS-0.66%
AmerisourceBergen Corp. 35,000 1,965,250
========================================================================
HEALTH CARE EQUIPMENT-2.76%
Apogent Technologies Inc.(a) 260,000 5,990,400
- ------------------------------------------------------------------------
Bard (C.R.), Inc. 27,700 2,250,625
========================================================================
8,241,025
========================================================================
HEALTH CARE SERVICES-1.85%
IMS Health Inc. 221,900 5,516,434
========================================================================
HEALTH CARE SUPPLIES-1.05%
Millipore Corp.(a) 72,900 3,138,345
========================================================================
HOME FURNISHINGS-1.52%
Mohawk Industries, Inc.(a) 64,200 4,528,668
========================================================================
HOUSEWARES & SPECIALTIES-1.32%
Newell Rubbermaid Inc. 172,200 3,920,994
========================================================================
INDUSTRIAL MACHINERY-6.03%
Dover Corp. 180,000 7,155,000
- ------------------------------------------------------------------------
ITT Industries, Inc. 31,100 2,307,931
- ------------------------------------------------------------------------
Pentair, Inc. 90,900 4,154,130
- ------------------------------------------------------------------------
</Table>
AIM V.I. MID CAP CORE EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INDUSTRIAL MACHINERY-(CONTINUED)
SPX Corp.(a) 74,200 $ 4,363,702
========================================================================
17,980,763
========================================================================
LEISURE PRODUCTS-2.53%
Brunswick Corp. 237,000 7,543,710
========================================================================
METAL & GLASS CONTAINERS-1.40%
Pactiv Corp.(a) 175,000 4,182,500
========================================================================
OFFICE SERVICES & SUPPLIES-1.75%
Herman Miller, Inc. 133,000 3,227,910
- ------------------------------------------------------------------------
Pitney Bowes Inc. 49,100 1,994,442
========================================================================
5,222,352
========================================================================
OIL & GAS DRILLING-1.03%
Noble Corp. (Cayman Islands)(a) 86,000 3,077,080
========================================================================
OIL & GAS EQUIPMENT & SERVICES-3.10%
BJ Services Co.(a) 86,000 3,087,400
- ------------------------------------------------------------------------
Cooper Cameron Corp.(a) 66,200 3,084,920
- ------------------------------------------------------------------------
Smith International, Inc.(a) 73,700 3,060,024
========================================================================
9,232,344
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.91%
Devon Energy Corp. 36,417 2,085,238
- ------------------------------------------------------------------------
Pioneer Natural Resources Co.(a) 100,000 3,193,000
- ------------------------------------------------------------------------
XTO Energy, Inc. 120,300 3,404,490
========================================================================
8,682,728
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.29%
Valero Energy Corp. 83,000 3,846,220
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.28%
Principal Financial Group, Inc. 115,000 3,803,050
========================================================================
PACKAGED FOODS & MEATS-2.16%
Campbell Soup Co. 240,000 6,432,000
========================================================================
PHARMACEUTICALS-1.04%
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 54,700 3,102,037
========================================================================
PROPERTY & CASUALTY INSURANCE-1.11%
ACE Ltd. (Cayman Islands) 80,000 3,313,600
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PUBLISHING-1.52%
Lee Enterprises, Inc. 33,000 $ 1,440,450
- ------------------------------------------------------------------------
New York Times Co. (The)-Class A 65,000 3,106,350
========================================================================
4,546,800
========================================================================
REGIONAL BANKS-1.81%
Marshall & Ilsley Corp. 43,100 1,648,575
- ------------------------------------------------------------------------
TCF Financial Corp. 72,700 3,733,145
========================================================================
5,381,720
========================================================================
RESTAURANTS-0.79%
Outback Steakhouse, Inc. 53,000 2,343,130
========================================================================
SEMICONDUCTOR EQUIPMENT-2.09%
ASML Holding N.V.-New York Shares
(Netherlands)(a) 178,500 3,578,925
- ------------------------------------------------------------------------
Novellus Systems, Inc.(a) 62,900 2,644,945
========================================================================
6,223,870
========================================================================
SEMICONDUCTORS-2.09%
Microchip Technology Inc. 101,550 3,387,708
- ------------------------------------------------------------------------
Xilinx, Inc.(a) 73,700 2,855,138
========================================================================
6,242,846
========================================================================
SPECIALTY CHEMICALS-2.58%
International Flavors & Fragrances Inc. 220,000 7,682,400
========================================================================
SYSTEMS SOFTWARE-2.69%
Computer Associates International, Inc. 293,400 8,021,556
========================================================================
THRIFTS & MORTGAGE FINANCE-0.81%
MGIC Investment Corp. 42,500 2,419,950
========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.06%
W.W. Grainger, Inc. 66,700 3,160,913
========================================================================
Total Stocks & Other Equity Interests
(Cost $208,600,730) 247,637,373
========================================================================
MONEY MARKET FUNDS-21.03%
Liquid Assets Portfolio(b) 31,340,710 31,340,710
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 31,340,710 31,340,710
========================================================================
Total Money Market Funds (Cost
$62,681,420) 62,681,420
========================================================================
TOTAL INVESTMENTS-104.12% (Cost $271,282,150) 310,318,793
========================================================================
OTHER ASSETS LESS LIABILITIES-(4.12%) (12,282,811)
========================================================================
NET ASSETS-100.00% $298,035,982
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$208,600,730) $247,637,373
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $62,681,420) 62,681,420
- -------------------------------------------------------------
Receivables for:
Fund shares sold 418,345
- -------------------------------------------------------------
Dividends 236,166
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 11,625
=============================================================
Total assets 310,984,929
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 12,678,056
- -------------------------------------------------------------
Fund shares reacquired 59,404
- -------------------------------------------------------------
Deferred compensation and retirement plans 12,465
- -------------------------------------------------------------
Accrued administrative services fees 157,544
- -------------------------------------------------------------
Accrued distribution fees-Series II 2,400
- -------------------------------------------------------------
Accrued transfer agent fees 2,076
- -------------------------------------------------------------
Accrued operating expenses 37,002
=============================================================
Total liabilities 12,948,947
=============================================================
Net assets applicable to shares outstanding $298,035,982
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $259,256,338
- -------------------------------------------------------------
Undistributed net investment income 13,423
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (270,422)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 39,036,643
=============================================================
$298,035,982
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $293,161,911
_____________________________________________________________
=============================================================
Series II $ 4,874,071
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 24,298,671
_____________________________________________________________
=============================================================
Series II 405,738
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 12.06
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 12.01
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$2,166) $ 1,436,566
- ------------------------------------------------------------
Dividends from affiliated money market funds 346,925
- ------------------------------------------------------------
Interest 640
============================================================
Total investment income 1,784,131
============================================================
EXPENSES:
Advisory fees 1,192,366
- ------------------------------------------------------------
Administrative services fees 447,630
- ------------------------------------------------------------
Custodian fees 61,710
- ------------------------------------------------------------
Distribution fees -- Series II 5,236
- ------------------------------------------------------------
Transfer agent fees 12,488
- ------------------------------------------------------------
Trustees' fees 9,529
- ------------------------------------------------------------
Other 42,092
============================================================
Total expenses 1,771,051
============================================================
Less: Fees waived and expense offset
arrangements (5,161)
============================================================
Net expenses 1,765,890
============================================================
Net investment income 18,241
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 3,119,954
- ------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 41,836,612
============================================================
Net gain from investment securities 44,956,566
============================================================
Net increase in net assets resulting from
operations $44,974,807
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. MID CAP CORE EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 18,241 $ (78,935)
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 3,119,954 (1,713,107)
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 41,836,612 (3,274,673)
=========================================================================================
Net increase (decrease) in net assets resulting from
operations 44,974,807 (5,066,715)
=========================================================================================
Distributions to shareholders from net realized gains:
Series I (1,650,955) --
- -----------------------------------------------------------------------------------------
Series II (26,270) --
=========================================================================================
Decrease in net assets resulting from distributions (1,677,225) --
=========================================================================================
Share transactions-net:
Series I 182,089,750 63,740,733
- -----------------------------------------------------------------------------------------
Series II 3,163,852 775,016
=========================================================================================
Net increase in net assets resulting from share
transactions 185,253,602 64,515,749
=========================================================================================
Net increase in net assets 228,551,184 59,449,034
=========================================================================================
NET ASSETS:
Beginning of year 69,484,798 10,035,764
=========================================================================================
End of year (including undistributed net investment income
(loss) of $13,423 and $(4,818) for 2003 and 2002,
respectively) $298,035,982 $69,484,798
_________________________________________________________________________________________
=========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Mid Cap 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
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. 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.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise stated.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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
AIM V.I. MID CAP CORE EQUITY FUND
between the last bid and asked prices. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
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.
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 AIM at the annual rate of 0.725% of the first
$500 million of the Fund's average daily net assets, plus 0.70% of the Fund's
average daily net assets on the next $500 million, plus 0.675% of the Fund's
average daily net assets on the next $500 million, plus 0.65% of the Fund's
average daily net assets in excess of $1.5 billion. AIM has contractually agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%
through December 31, 2003. 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. For the year ended December 31, 2003, AIM waived fees of
$5,000.
Pursuant to a master administrative services agreement with AIM, the Fund
has agreed to pay AIM a fee for costs incurred in providing accounting services
and certain administrative services to the participants of separate accounts and
to reimburse AIM for administrative services fees paid to insurance companies
that have agreed to provide administrative services to the Fund. For the year
ended December 31, 2003, the Fund paid AIM $447,630 for such services, of which
AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $10,522 for
such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid 5,236.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
AIM V.I. MID CAP CORE EQUITY FUND
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. Each day the prior day's balance invested in the
affiliated money market fund is redeemed in full and a new purchase amount is
submitted to invest the current day's available cash. The table below shows the
transactions in and earnings from investments in affiliated money market funds
for the period ended December 31, 2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 7,477,972 $ 74,372,576 $ 50,509,838 $-- $31,340,710 $175,132 $--
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 7,477,972 74,372,576 50,509,838 -- 31,340,710 171,793 --
=================================================================================================================================
$14,955,944 $148,745,152 $101,019,676 $-- $62,681,420 $346,925 $--
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of custodian
credits resulting from periodic overnight cash balances at the custodian. For
the year ended December 31, 2003, the Fund received reductions in custodian fees
of $161 under an expense offset arrangement which resulted in a reduction of the
Fund's total expenses of $161.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,878
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 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, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------
Distributions paid from ordinary income $1,677,225 $--
____________________________________________________________
============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 242,829
- -------------------------------------------------------------
Unrealized appreciation -- investments 38,545,543
- -------------------------------------------------------------
Temporary book/tax differences (8,728)
- -------------------------------------------------------------
Shares of beneficial interest 259,256,338
=============================================================
Total net assets $298,035,982
_____________________________________________________________
=============================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains
AIM V.I. MID CAP CORE EQUITY FUND
and losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the tax deferral of losses
on wash sales.
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 deferral of trustee compensation and
trustee retirement plan expenses.
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, 2003 was $196,482,686 and $49,599,546, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $39,267,871
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (722,328)
============================================================
Net unrealized appreciation of investment
securities $38,545,543
____________________________________________________________
============================================================
Cost of investments for tax purposes is $271,773,250.
</Table>
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------
Sold:
Series I 18,564,670 $196,407,917 7,099,303 $71,687,663
- -----------------------------------------------------------------------------
Series II 365,523 4,040,389 84,599 847,018
=============================================================================
Reacquired:
Series I (1,431,786) (14,318,167) (820,000) (7,946,930)
- -----------------------------------------------------------------------------
Series II (87,420) (876,537) (7,021) (72,002)
=============================================================================
17,410,987 $185,253,602 6,356,881 $64,515,749
_____________________________________________________________________________
=============================================================================
</Table>
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------
YEAR ENDED SEPTEMBER 10, 2001
DECEMBER 31, (DATE OPERATIONS
---------------------- COMMENCED) TO
2003 2002 DECEMBER 31, 2001
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.53 $ 10.72 $10.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.00(a) (0.02)(a) 0.00
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.60 (1.17) 0.74
==========================================================================================================
Total from investment operations 2.60 (1.19) 0.74
==========================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.02)
- ----------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.07) -- --
==========================================================================================================
Net asset value, end of period $ 12.06 $ 9.53 $10.72
__________________________________________________________________________________________________________
==========================================================================================================
Total return(b) 27.31% (11.10)% 7.37%
__________________________________________________________________________________________________________
==========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $293,162 $68,271 $9,500
__________________________________________________________________________________________________________
==========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.07%(c) 1.30% 1.27%(d)
- ----------------------------------------------------------------------------------------------------------
Without fee waivers 1.07%(c) 1.30% 5.16%(d)
==========================================================================================================
Ratio of net investment income (loss) to average net assets 0.01%(c) (0.22)% (0.08)%(d)
__________________________________________________________________________________________________________
==========================================================================================================
Portfolio turnover rate(e) 37% 36% 20%
__________________________________________________________________________________________________________
==========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $162,369,892.
(d) Annualized.
(e) Not annualized for periods less than one year.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------------
SEPTEMBER 10, 2001
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
-------------------- DECEMBER 31,
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.51 $ 10.71 $10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.04)(a) (0.01)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.60 (1.16) 0.73
============================================================================================================
Total from investment operations 2.57 (1.20) 0.72
============================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.01)
- ------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.07) -- --
============================================================================================================
Net asset value, end of period $12.01 $ 9.51 $10.71
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) 27.05% (11.20)% 7.22%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,874 $ 1,214 $ 536
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.32%(c) 1.45% 1.44%(d)
- ------------------------------------------------------------------------------------------------------------
Without fee waivers 1.32%(c) 1.55% 5.44%(d)
============================================================================================================
Ratio of net investment income (loss) to average net assets (0.24)%(c) (0.37)% (0.25)%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(e) 37% 36% 20%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $2,094,331.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
AIM V.I. MID CAP CORE EQUITY FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. MID CAP CORE EQUITY FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Mid Cap Core Equity Fund, formerly AIM V.I. Mid Cap Equity Fund, a series of
shares of beneficial interest of AIM Variable Insurance Funds, including the
schedule of investments as of December 31, 2003, the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the two years in the period then ended and for the period September 10,
2001 (commencement of operations) through December 31, 2001. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Mid Cap Core Equity Fund as of December 31, 2003, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the two years in the period then ended and for the period September 10, 2001
(commencement of operations) through December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. MID CAP CORE EQUITY FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -----------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director and
President Vice Chairman, AMVESCAP PLC and Chairman of 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 Officer, A I M None
Trustee and Executive Vice Management Group Inc. (financial services holding
President 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),
and Fund Management Company (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. and
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
- -----------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -----------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -----------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance investment company);
Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
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 Century Group, Administaff, Discovery
Trustee Inc. (government affairs company) and Texana Timber LP Global Education Fund
(sustainable forestry company) (non-profit)
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. MID CAP CORE EQUITY FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations None
Trustee Hines Interests Limited Partnership (real estate
development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General Counsel,
Liberty Financial Companies, Inc.; and Senior Vice
President and General Counsel, Liberty Funds Group,
LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.;
and Vice President, AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and President, N/A
Vice President Chief Executive Officer and Chief Investment
Officer, A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 71.58% is eligible for the dividends received deduction for
corporations.
AIM V.I. MID CAP CORE EQUITY FUND
AIM V.I. MONEY MARKET FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. MONEY MARKET FUND seeks to provide as
high a level of current income as
is consistent with the
preservation of capital and liquidity.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. MONEY MARKET FUND
LOW INTEREST RATES
CONTINUE TO LIMIT FUND'S YIELD
As of December 31, 2003, the seven-day For the first half of the year, the AIM V.I. Money Market Fund was
yield for AIM V.I. Money Market Fund's Federal Reserve (the Fed) kept the affected by this decline in short-term
Series I shares and Series II shares was short-term federal funds rate at 1.25%. interest rates. Nonetheless, the fund
0.46% and 0.21%, respectively. As of the On June 25, 2003, it reduced that rate to continued to offer risk averse investors
same date, the fund's weighted average 1.00%, its lowest level since 1958. At safety of principal during a year of
maturity stood at 42 days and its total the time, the Fed said it favored a more economic uncertainty. In an effort to
net assets were $79.9 million. expansive monetary policy because the achieve the fund's objectives, we
economy had not yet exhibited sustainable stressed:
MARKET CONDITIONS growth. By October, the Fed reported that
economic expansion had increased and o safety--providing the highest
Amid a backdrop of generally improving consumer spending was generally stronger, possible safety of principal;
economic conditions, the S&P although the job market remained weak.
500--Registered Trademark-- Index The Fed's November Beige Book report o liquidity--investing in securities
returned 28.67% for the year ended cited "reasonably broad based" economic that offer liquidity of assets; and
December 31, 2003. It declined at the expansion in October and early November
beginning of 2003, dropping to its lowest and noted that in most Federal Reserve o yield--seeking the highest possible
level of the year on March 11, and then districts, wages and the prices of yield consistent with safety of
rallied. All sectors of the S&P 500 Index finished goods and services remained principal.
recorded gains for the year. Information fairly stable, retail spending increased
technology, materials, and consumer on a year-over-year basis, manufacturing IN CLOSING
discretionary were the top-performing activity picked up, and residential real
sectors while telecommunications estate activity remained strong while During 2003, the fund attempted to
services, consumer staples, and health commercial real estate activity remained provide as high a level of current income
care were the weakest-performing sectors. weak. as was consistent with the preservation
of capital and liquidity.
During this rally, the United States YOUR FUND
and its allies took military action ----------
against Iraq and toppled the regime of Throughout 2003, the Fed maintained
Saddam Hussein. The nation's gross shortterm interest rates at levels not AIM Variable Insurance Funds are offered
domestic product, generally considered seen in decades. As a result, yields on through insurance company separate
the broadest measure of economic bank savings accounts and money market accounts to fund variable annuity
activity, expanded at an annualized rate funds remained low by historical contracts and variable life insurance
of 1.4% in the first quarter, 3.1% in the standards. Although a money market fund policies, and through certain pension or
second quarter, 8.2% in the third seeks to maintain the value of one's retirement plans. Performance figures
quarter, and 4.0% in the fourth quarter investment at $1.00 per share, it is given represent the fund and are not
of 2003. According to Bloomberg, as of possible to lose money by investing in intended to reflect actual variable
the close of the year, approximately 64% the fund. product values. They do not reflect sales
of the companies in the S&P 500 Index had charges, expenses and fees at the
reported third-quarter earnings that separate account level. Sales charges,
exceeded analysts' expectations. expenses and fees, which are determined
by the product issuers, will vary and
will lower the total return.
The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P
500 Index) is an index of common stocks
frequently used as a general measure of
U.S. stock market performance.
Bloomberg, Inc., is a well-known
independent financial research and
reporting firm.
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.
An investment in the fund is not a
deposit in a bank and is not insured or
guaranteed by the Federal Deposit
Insurance Corporation or any other
government agency.
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, by calling
800-959-4246, or on the AIM Web site,
AIMinvestments.com.
====================================
TEAM MANAGED BY A I M ADVISORS, INC.
====================================
VIMKT-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- ---------------------------------------------------------------
COMMERCIAL PAPER-16.04%(a)
ASSET-BACKED SECURITIES-FULLY
BACKED-5.00%
Aquinas Funding LLC
(Rabobank-ABS Program
Sponsor) (Acquired 10/07/03;
Cost $1,994,256)
1.10%(b) 01/09/04 $2,000 $ 1,999,511
- ---------------------------------------------------------------
(Acquired 09/18/03; Cost
$1,988,800) 1.12%(b) 03/16/04 2,000 1,995,334
===============================================================
3,994,845
===============================================================
ASSET-BACKED SECURITIES-MULTI-
PURPOSE-0.41%
Sheffield Receivables Corp.
(Barclays Bank PLC-New York
Branch-ABS Program Sponsor)
1.10% 01/13/04 330 329,879
===============================================================
ASSET-BACKED SECURITIES-TRADE
RECEIVABLES-4.38%
FCAR Owner Trust-Series II
(Ford Motor Credit Co.-ABS
Program Sponsor)
1.09% 02/13/04 2,000 1,997,396
- ---------------------------------------------------------------
New Center Asset Trust-Series
A-1 (General Motors
Acceptance Corp.-ABS Program
Sponsor)
1.10% 02/17/04 1,500 1,497,846
===============================================================
3,495,242
===============================================================
OTHER DIVERSIFIED FINANCIAL
SERVICES-5.00%
GE Capital International
Funding, Inc.- Series A
(Acquired 10/09/03; Cost
$3,988,267)
1.10%(b) 01/13/04 4,000 3,998,533
===============================================================
REGIONAL BANKS-1.25%
Banque et Caisse d'Epargne de
l'Etat (Luxembourg)
1.18% 06/07/04 1,000 994,821
===============================================================
Total Commercial Paper
(Cost $12,813,320) 12,813,320
===============================================================
VARIABLE RATE DEMAND
NOTES-15.92%(c)
INSURED-5.57%(d)(e)(f)
Michigan (State of) Western
Michigan University; Taxable
Series 2002 B RB,
1.17% 11/15/32 2,920 2,920,000
- ---------------------------------------------------------------
Omaha (City of), Nebraska;
Special Tax Redevelopment
Series B RB,
1.22% 02/01/13 1,530 1,530,000
===============================================================
4,450,000
===============================================================
</Table>
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- ---------------------------------------------------------------
LETTER OF CREDIT
GUARANTEED-10.35%(d)(e)(g)
Albuquerque (City of), New
Mexico (Ktech Corp.
Project); Series 2002 IDR
(LOC-Wells Fargo Bank N.A.),
1.30% 11/01/22 $1,725 $ 1,725,000
- ---------------------------------------------------------------
Corp. Finance Managers,
Floating Rate Notes
(LOC-Wells Fargo Bank N.A.),
1.30% 02/02/43 2,615 2,615,000
- ---------------------------------------------------------------
Dome Corp.; Floating Rate
Notes (LOC-Wachovia Bank
N.A.)
(Acquired 12/20/02; Cost
$665,000),
1.14%(b) 08/31/16 665 665,000
- ---------------------------------------------------------------
Folk Financial Services
Inc.-Series A, Floating Rate
Loan Program Notes
(LOC-National City Bank),
1.18% 10/15/27 1,065 1,065,000
- ---------------------------------------------------------------
Moon (City of), Pennsylvania
Industrial Development
Authority (One Thorn Run
Project); Series 1995 IDR
(LOC-National City Bank),
1.18% 11/01/15 1,000 1,000,000
- ---------------------------------------------------------------
Roman Catholic Diocese of
Charlotte, North Carolina;
Series 2002 RB (LOC-Wachovia
Bank N.A.),
1.14% 05/01/14 1,200 1,200,000
===============================================================
8,270,000
===============================================================
Total Variable Rate Demand
Notes (Cost $12,720,000) 12,720,000
===============================================================
MASTER NOTE
AGREEMENTS-11.27%(h)
Merrill Lynch Mortgage
Capital, Inc.
(Acquired 08/25/03; Cost
$5,000,000)
1.14%(b)(i) 02/23/04 5,000 5,000,000
- ---------------------------------------------------------------
Morgan Stanley
(Acquired 09/15/03; Cost
$4,000,000)
1.05%(b)(j) 06/14/04 4,000 4,000,000
===============================================================
Total Master Note
Agreements (Cost
$9,000,000) 9,000,000
===============================================================
CERTIFICATES OF DEPOSIT-10.76%
ABN AMRO Bank N.V.
(Netherlands)
1.38% 08/27/04 600 600,179
- ---------------------------------------------------------------
Barclays Bank PLC (United
Kingdom)
1.27% 07/22/04 1,000 1,000,000
- ---------------------------------------------------------------
HBOS Treasury Services PLC
(United Kingdom)
1.16% 03/22/04 2,000 2,000,000
- ---------------------------------------------------------------
1.15% 06/29/04 2,000 2,000,000
- ---------------------------------------------------------------
National Australia Bank Ltd.
(Australia)
1.26% 08/24/04 1,000 1,000,000
- ---------------------------------------------------------------
</Table>
AIM V.I. MONEY MARKET FUND
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- ---------------------------------------------------------------
Societe Generale (France)
1.11%(k) 10/01/04 $2,000 $ 1,999,471
===============================================================
Total Certificates Of
Deposit (Cost
$8,599,650) 8,599,650
===============================================================
ASSET-BACKED NOTES-7.94%
CONSUMER RECEIVABLES-1.68%
Honda Auto Receivables 2003-2
Owner Trust, Class A-1
Notes,
1.23% 06/11/04 270 270,020
- ---------------------------------------------------------------
Nissan Auto Receivables 2003-B
Owner Trust, Class A-1
Notes,
1.17% 06/15/04 1,069 1,069,386
===============================================================
1,339,406
===============================================================
STRUCTURED-6.26%
Holmes Financing (No. 7) PLC
(United Kingdom)-Series 1,
Class A, Floating Rate
Bonds,
1.12%(k) 04/15/04 5,000 5,000,000
===============================================================
Total Asset-Backed Notes
(Cost $6,339,406) 6,339,406
===============================================================
U.S. GOVERNMENT AGENCY
SECURITIES-6.26%
FEDERAL HOME LOAN BANK-6.26%
Unsec. Bonds,
3.75% 02/13/04 1,000 1,002,749
- ---------------------------------------------------------------
1.03% 07/23/04 2,000 2,000,000
- ---------------------------------------------------------------
1.46% 11/17/04 2,000 2,000,000
===============================================================
Total U.S. Government
Agency Securities (Cost
$5,002,749) 5,002,749
===============================================================
FUNDING AGREEMENTS-3.75%
New York Life Insurance Co.
(Acquired 04/03/03; Cost
$3,000,000) 1.25%(b)(k)(l) 04/07/04 3,000 3,000,000
===============================================================
Total Investments
(excluding Repurchase
Agreements) (Cost
$57,475,125) 57,475,125
===============================================================
</Table>
<Table>
<Caption>
PAR
MATURITY (000) VALUE
- ---------------------------------------------------------------
REPURCHASE AGREEMENTS-28.08%
ABN AMRO Bank N.V.-New York
Branch (Netherlands)
0.98%(m) 01/02/04 $1,432 $ 1,432,227
- ---------------------------------------------------------------
Citigroup Global Markets Inc.
0.98%(n) 01/02/04 3,000 3,000,000
- ---------------------------------------------------------------
Goldman, Sachs & Co.
1.00%(o) 01/02/04 3,000 3,000,000
- ---------------------------------------------------------------
Greenwich Capital Markets,
Inc.-New York Branch (United
Kingdom)
1.00%(p) 01/02/04 3,000 3,000,000
- ---------------------------------------------------------------
JP Morgan Securities Inc.
1.00%(q) 01/02/04 3,000 3,000,000
- ---------------------------------------------------------------
Morgan Stanley & Co. Inc.
0.98%(r) 01/02/04 3,000 3,000,000
- ---------------------------------------------------------------
UBS Warburg LLC-New York
Branch (Switzerland)
0.99%(s) 01/02/04 3,000 3,000,000
- ---------------------------------------------------------------
Wachovia Securities, Inc.
1.00%(t) 01/02/04 3,000 3,000,000
===============================================================
Total Repurchase
Agreements (Cost
$22,432,227) 22,432,227
===============================================================
TOTAL INVESTMENTS-100.02%
(cost $79,907,352)(u) 79,907,352
===============================================================
OTHER ASSETS LESS
LIABILITIES-(0.02%) (19,458)
===============================================================
NET ASSETS-100.00% $79,887,894
_______________________________________________________________
===============================================================
</Table>
AIM V.I. MONEY MARKET FUND
Investment Abbreviations:
<Table>
ABS - Asset Backed Security
IDR - Industrial Development Revenue Bonds
LOC - Letter of Credit
RB - Revenue Bonds
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(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 these securities.
The aggregate market value of these securities at 12/31/03 was $20,658,378,
which represented 25.86% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Interest on these securities are taxable income to the Fund.
(d) Demand security; payable upon demand by the Fund with usually no more than
seven calendar days' notice.
(e) Interest rates are redetermined weekly. Rates shown are rates in effect on
12/31/03.
(f) Principal and interest payments are secured by bond insurance provided by
Ambac Assurance Corp.
(g) Principal and interest payments are guaranteed by the letter of credit
agreement.
(h) The investments in master note agreements are through participation in joint
accounts with other mutual funds, private accounts, and certain
non-registered investment companies managed by the investment advisor or its
affiliates.
(i) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon one business days notice. Interest rates on master
notes are redetermined daily. Rate shown is the rate in effect on 12/31/03.
(j) The Fund may demand prepayment of notes purchased under the Master Note
Purchase Agreement upon seven business days notice. Interest rates on master
notes are redetermined daily. Rate shown is the rate in effect on 12/31/03.
(k) Interest rates are redetermined monthly. Rates shown are rates in effect on
12/31/03.
(l) Security considered to be illiquid. The market value of this security
considered illiquid at 12/31/03 represented 3.75% of the Fund's net assets.
(m) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$250,013,611. Collateralized by $243,696,000 U.S. Government obligations, 0%
to 6.63% due 02/24/04 to 01/02/14 with an aggregate market value at 12/31/03
of $255,000,618.
(n) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$500,027,222. Collateralized by $516,663,000 U.S. Government obligations, 0%
to 7% due 06/15/05 to 04/15/42 with an aggregate market value at 12/31/03 of
$510,001,001.
(o) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$500,027,778. Collateralized by $503,392,668 U.S. Government obligations,
3.50% to 9.00% due 11/01/07 to 12/01/33 with an aggregate market value at
12/31/03 of $510,000,000.
(p) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$1,000,055,556. Collateralized by $1,000,601,378 U.S. Government
obligations, 0% to 7.50% due 12/01/10 to 07/01/42 with an aggregate market
value at 12/31/03 of $1,020,002,880.
(q) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$250,013,889. Collateralized by $242,644,210 U.S. Government obligations,
3.50% to 8.50% due 07/01/10 to 12/01/33 with an aggregate market value at
12/31/03 of $255,000,401.
(r) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$250,013,611. Collateralized by $248,968,766 U.S. Government obligations,
3.19% to 8.50% due 12/01/09 to 12/01/33 with an aggregate market value at
12/31/03 of $255,637,695.
(s) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$750,041,250. Collateralized by $748,530,991 U.S. Government obligations,
4.50% to 7.50% due 09/01/09 to 01/01/34 with an aggregate market value at
12/31/03 of $765,002,221.
(t) Joint repurchase agreement entered into 12/31/03 with a maturing value of
$1,000,055,556. Collateralized by $1,027,984,250 U.S. Government
obligations, 0% to 6% due 05/15/05 to 01/01/34 with an aggregate market
value at 12/31/03 of $1,020,000,834.
(u) Also represents cost for federal income tax purposes.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, excluding repurchase agreements,
at value (amortized cost) $57,475,125
- ------------------------------------------------------------
Repurchase agreements 22,432,227
- ------------------------------------------------------------
Receivables for:
Fund shares sold 69,718
- ------------------------------------------------------------
Interest 80,644
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 46,140
============================================================
Total assets 80,103,854
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 112,920
- ------------------------------------------------------------
Deferred compensation and retirement plans 49,906
- ------------------------------------------------------------
Accrued administrative services fees 37,775
- ------------------------------------------------------------
Accrued distribution fees -- Series II 1,594
- ------------------------------------------------------------
Accrued transfer agent fees 396
- ------------------------------------------------------------
Accrued operating expenses 13,369
============================================================
Total liabilities 215,960
============================================================
Net assets applicable to shares outstanding $79,887,894
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $79,886,468
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities 1,426
============================================================
$79,887,894
____________________________________________________________
============================================================
NET ASSETS:
Series I $77,505,434
____________________________________________________________
============================================================
Series II $ 2,382,460
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 77,504,035
____________________________________________________________
============================================================
Series II 2,382,433
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 1.00
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 1.00
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Interest $ 1,343,799
============================================================
EXPENSES:
Advisory fees 430,021
- ------------------------------------------------------------
Administrative services fees 234,416
- ------------------------------------------------------------
Custodian fees 3,348
- ------------------------------------------------------------
Distribution fees -- Series II 10,355
- ------------------------------------------------------------
Transfer agent fees 4,567
- ------------------------------------------------------------
Trustees' fees 10,166
- ------------------------------------------------------------
Other 25,302
============================================================
Total expenses 718,175
============================================================
Net investment income 625,624
============================================================
Net increase in net assets resulting from
operations $ 625,624
____________________________________________________________
============================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 625,624 $ 1,493,720
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities -- 1,121
==========================================================================================
Net increase in net assets resulting from operations 625,624 1,494,841
==========================================================================================
Distributions to shareholders from net investment income:
Series I (610,648) (1,462,967)
- ------------------------------------------------------------------------------------------
Series II (14,976) (30,753)
==========================================================================================
Decrease in net assets resulting from distributions (625,624) (1,493,720)
==========================================================================================
Share transactions-net:
Series I (42,030,863) (8,742,052)
- ------------------------------------------------------------------------------------------
Series II (5,448,303) 6,833,408
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (47,479,166) (1,908,644)
==========================================================================================
Net increase (decrease) in net assets (47,479,166) (1,907,523)
==========================================================================================
NET ASSETS:
Beginning of year 127,367,060 129,274,583
==========================================================================================
End of year (including undistributed net investment income
(loss) of $0 and $0 for 2003 and 2002, respectively) $ 79,887,894 $127,367,060
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Money Market 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
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. 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. The Fund's investment objective is to seek
to provide as high a level of current income as is consistent with the
preservation of capital and liquidity.
The 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 -- The Fund's securities are valued on the basis of
amortized cost which approximates market value as permitted under Rule 2a-7
of the 1940 Act. This method values a security at its cost on the date of
purchase and, thereafter, assumes a constant amortization to maturity of
any premiums or accretion of any discounts.
B. 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 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").
C. 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, adjusted for amortization of premiums and accretion
of discounts on investments, is recorded on the accrual basis from
settlement date.
The Fund allocates realized and unrealized capital gains and losses to a
class based on the relative net assets of each class. The Fund allocates
income to a class based on the relative value of the settled shares of each
class.
D. DISTRIBUTIONS -- It is the policy of the Fund to declare and pay daily
dividends from net investment income. Distributions from net realized
capital gains, if any, are generally paid annually and recorded on
ex-dividend date.
E. 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. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
F. 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.
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 AIM at the annual rate of 0.40% on the first
$250 million of the Fund's average daily net assets, plus 0.35% of the Fund's
average daily net assets in excess of $250 million. AIM has voluntarily agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
Voluntary expense limitations may be modified or discontinued at any time
without further notice to investors.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $234,416 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and
AIM V.I. MONEY MARKET FUND
shareholder services to the Fund. During the year ended December 31, 2003, AISI
retained $4,870 for such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $10,355.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,805
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 4--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 5--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- --------------------------------------------------------------
Distributions paid from ordinary
income $625,624 $1,493,720
______________________________________________________________
==============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 56,775
- ------------------------------------------------------------
Temporary book/tax differences (55,349)
- ------------------------------------------------------------
Shares of beneficial interest 79,886,468
============================================================
Total net assets $79,887,894
____________________________________________________________
============================================================
</Table>
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 deferral of trustee compensation and
trustee retirement plan expenses.
AIM V.I. MONEY MARKET FUND
NOTE 6--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2003 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 123,982,671 $ 123,982,671 110,861,797 $ 110,861,797
- ----------------------------------------------------------------------------------------------------------------------------
Series II 81,320,924 81,320,924 214,772,526 214,772,526
============================================================================================================================
Issued as reinvestment of dividends:
Series I 610,648 610,648 1,462,967 1,462,967
- ----------------------------------------------------------------------------------------------------------------------------
Series II 14,976 14,976 30,753 30,753
============================================================================================================================
Reacquired:
Series I (166,624,182) (166,624,182) (121,066,816) (121,066,816)
- ----------------------------------------------------------------------------------------------------------------------------
Series II (86,784,203) (86,784,203) (207,969,871) (207,969,871)
============================================================================================================================
(47,479,166) $ (47,479,166) (1,908,644) $ (1,908,644)
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
NOTE 7--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01 0.01 0.04 0.06 0.05
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.01) (0.01) (0.04) (0.06) (0.05)
======================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(a) 0.58% 1.19% 3.61% 5.83% 4.66%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $77,505 $119,536 $128,277 $73,864 $95,152
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 0.66%(b) 0.67% 0.64% 0.71% 0.60%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of net investment income to average net assets 0.59%(b) 1.18% 3.36% 5.66% 4.59%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges at the separate account level which if included would reduce
total returns for all periods shown.
(b) Ratios are based on average daily net assets of $103,363,012.
AIM V.I. MONEY MARKET FUND
NOTE 7--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------------
DECEMBER 16, 2001
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
-------------------- DECEMBER 31,
2003 2002 2001
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $1.00
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.003 0.01 0.00
- -------------------------------------------------------------------------------------------------------
Less distributions from net investment income (0.003) (0.01) 0.00
=======================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $1.00
_______________________________________________________________________________________________________
=======================================================================================================
Total return(a) 0.33% 0.93% 0.05%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 2,382 $7,831 $ 997
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets 0.91%(b) 0.92% 0.89%(c)
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of net investment income to average net assets 0.34%(b) 0.93% 3.11%(c)
_______________________________________________________________________________________________________
=======================================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(b) Ratios are based on average daily net assets of $4,142,133.
(c) Annualized.
NOTE 8--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
AIM V.I. MONEY MARKET FUND
NOTE 8--LEGAL PROCEEDINGS (CONTINUED)
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. MONEY MARKET FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Money Market Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the years or periods in the five year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Money Market Fund as of December 31, 2003, 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 years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. MONEY MARKET FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
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 Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President 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), and
Fund Management Company (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. and
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
- ----------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered
Formerly: Partner, law firm of Baker & McKenzie investment company)
- ----------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited
Trustee (technology consulting company) (insurance company);
and Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman)
Ltd. (private investment and management) and (registered
Magellan Insurance Company investment company);
Annuity and Life Re
Formerly: Director, President and Chief Executive (Holdings), Ltd.
Officer, Volvo Group North America, Inc.; Senior (insurance company)
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 Century Administaff,
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund
(non-profit)
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. MONEY MARKET FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered
investment company)
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- -------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel,
Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer N/A
Vice President 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 Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, AIM
Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice President,
A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, N/A
Vice President A I M Capital Management, Inc; Director and
President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. The Bank of New York
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 100 Church Street
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 New York, NY 10286
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 0% is eligible for the dividends received deduction for
corporations.
AIM V.I. MONEY MARKET FUND
AIM V.I. NEW TECHNOLOGY FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. NEW TECHNOLOGY FUND seeks to provide long-term growth of capital.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. NEW TECHNOLOGY FUND
STRENGTH IN TECHNOLOGY either stocks of small-cap companies or
LIFTS FUND PERFORMANCE stocks of companies with balance sheets
that did not meet our fundamental stock
For the year ended December 31, 2003, S&P 500 Index had reported third-quarter selection criteria. As a result, both
AIM V.I. New Technology Fund Series I earnings that exceeded analysts' groups tended to be absent from our
and Series II shares returned 52.38% and expectations. The job market, while portfolio.
51.95%, respectively. For the same improving, continued to be weak,
period, the fund's broad market index, however; the nation's unemployment rate Nonetheless, the fund performed well
the S&P 500--Registered Trademark-- stood at 5.7% at the close of the year. for the year--particularly its
Index, returned 28.67%; its semiconductor, communications
style-specific index, the PSE Technology The Semiconductor Industry semiconductor, and storage stocks.
100 Index, returned 52.14%; and its peer Association, a trade group, reported Because we believe that semiconductor
group index, the Lipper Science and that worldwide sales of semiconductors stocks have a high degree of operating
Technology Fund Index, returned 51.31%. increased 4.5% from October to November leverage (meaning that even a relatively
The fund outperformed the S&P 500 Index 2003, and that sales rose 25.7% from modest increase in revenue can have a
because of its emphasis on stocks in the November 2002 to November 2003. A survey fairly dramatic effect on earnings), we
information technology sector. of more than 600 technology executives added to our semiconductor holdings
conducted by Gartner, Inc. and Soundview during the year. Communications
MARKET CONDITIONS Technology Group showed those executives semiconductors is one group that we
were increasingly confident about the believe has bottomed but has yet to
As noted above, the S&P 500 Index sustainability of higher capital experience any dramatic improvement.
provided positive returns for the year spending. Stocks of companies in the computer
ended December 31, 2003. It declined at storage and peripherals industry
the beginning of 2003, dropping to its In a speech, Federal Open Market performed well despite a downturn in
lowest level of the year on March 11, Committee member Ben Bernanke said that capital expenditures, because storage
and then rallied. All sectors of the S&P while "downside risks to the economy has remained a priority for corporate
500 Index recorded gains for the year. remain...finally, the business sector chief information officers.
Information technology was the appears to have emerged from its funk.
best-performing sector, returning Corporate investment has been strong, There were some industries that
47.23%. particularly in equipment and software." hindered fund performance, however. The
fund held some investments in the
The nation's gross domestic product, YOUR FUND aerospace and defense industry and the
generally considered the broadest health care providers and services
measure of economic activity, expanded After three difficult years, information industry. These industries tend to be
at an annualized rate of 1.4% in the technology stocks returned to investor more appealing for their defensive
first quarter, 3.1% in the second favor in 2003. As investors grew more characteristics, and during 2003,
quarter, 8.2% in the third quarter, and confident about economic and market investors were willing to accept greater
4.0% in the fourth quarter of 2003. trends, they rotated into technology risk, and potential reward, in less
According to Bloomberg, as of the close stocks. Unfortunately, within defensive industries. Although holdings
of the year, approximately 64% of the technology, many of the in both industries had positive absolute
companies in the strongest-performing stocks were returns, they underperformed many of the
other industries in the portfolio after
failing to meet investor expectations
regarding earnings
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Cisco Systems, Inc. 5.3% 1. Semiconductors 23.1% Total returns 12/31/02-12/31/03,
2. Intel Corp. 5.0 2. Communications Equipment 19.0 excluding product issuer charges
3. Microsoft Corp. 3.6 3. Systems Software 10.4
4. EMC Corp. 2.9 4. Application Software 10.1 Series I Shares 52.38%
5. Dell Inc. 2.3 5. Semiconductor Equipment 7.4 Series II Shares 51.95
6. Yahoo! Inc. 2.2 6. Computer Storage & Peripherals 4.6 S&P 500 Index 28.67
7. VERITAS Software Corp. 2.0 7. Computer Hardware 4.2 (Broad Market Index)
8. Applied Materials, Inc. 1.9 8. Internet Software & Services 3.7 PSE Technology 100 Index 52.14
9. Texas Instruments Inc. 1.9 9. Electronic Manufacturing Services 3.6 (Style-specific Index)
10. QUALCOMM Inc. 1.8 10. Electronic Equipment Manufacturers 1.8 Lipper Science and Technology Fund
Index 51.31
(Peer Group Index)
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 103
TOTAL NET ASSETS $20.6 million
====================================================================================================================================
</Table>
<Table>
===================
Portfolio Manager
As of 12/31/03
William R. Keithler
===================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
AIM V.I. NEW TECHNOLOGY FUND
growth. Fortunately, specific holdings RESULTS OF A $10,000 INVESTMENT
that underperformed accounted for a 10/18/93-12/31/03
relatively small percentage of total net Index data from 10/31/93
assets.
[LINE CHART]
While the fund was fairly
aggressively positioned throughout the
year, we added stocks of companies AIM V.I.
leveraged to a recovery in information LIPPER SCIENCE NEW TECHNOLOGY
technology spending. In particular, we PSE TECHNOLOGY S&P 500 AND TECHNOLOGY FUND-SERIES
increased the fund's exposure to the 100 INDEX INDEX FUND INDEX I SHARES
electronic manufacturing services
industry and the electronic distribution 10/18/1993 10000 10000 10000 10000
industry. 12/31/1993 10439 10024 10043 10891
12/31/1994 12618 10156 10982 11669
For the year, Nextel contributed to 12/31/1995 18638 13968 15216 14427
fund performance while Cerner detracted 12/31/1996 22371 17173 17791 17216
from fund performance. Nextel boasts the 12/31/1997 26839 22900 19185 19724
highest revenue per subscriber and the 12/31/1998 41494 29450 28190 24086
lowest customer turnover rate in the 12/31/1999 89790 35644 60303 49736
wireless industry. In October, the 12/31/2000 75229 32400 42047 31690
company announced record third quarter 12/31/2001 63500 28552 27447 16647
earnings. Cerner, a leading provider of 12/31/2002 42336 22244 16089 9135
information technology to the health 12/31/2003 64410 28621 24344 13923
care sector, surprised the market in
April by announcing that its first Source: Lipper, Inc.
quarter revenues and earnings would be
below expectations. The company's stock Past performance cannot guarantee comparable future results.
swiftly and significantly declined.
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
IN CLOSING 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
We were pleased that investing in stocks increment between $5,000 and $10,000 is the same as that between $10,000 and
of technology and science companies that $20,000. In a linear chart, the latter scale increment would be twice as large. The
we believe are likely to benefit from benefit of using a logarithmic scale is that it better illustrates performance
new or innovative products, services, or during the fund's early years before reinvested distributions and compounding
processes provided positive total create the potential for the original investment to grow to very large numbers. Had
returns for the year ended December 31, the chart used a linear scale along its vertical axis, you would not be able to see
2003. as clearly the movements in the value of the fund and the indexes during the fund's
early years. AIM uses a logarithmic scale in financial reports of funds that have
---------- more than five years of performance history.
AVERAGE ANNUAL TOTAL RETURNS
- ---------------------------------------- investor's shares, when redeemed, may be obsolescence of products and services,
As of 12/31/03 worth more or less than their original short product cycles, and aggressive
cost. pricing. Many technology companies are
SERIES I SHARES small and at an early state of
10 Years 2.49% AIM Variable Insurance Funds are development and, therefore, may be
5 Years -10.39 offered through insurance company subject to risks such as limited product
1 Year 52.38 separate accounts to fund variable lines, markets, and financial and
annuity contracts and variable life managerial resources.
SERIES II SHARES* insurance policies, and through certain
10 Years 2.25% pension or retirement plans. Performance ABOUT INDEXES USED IN THIS REPORT
5 Years -10.59 figures given represent the fund and are
1 Year 51.95 not intended to reflect actual variable The unmanaged Lipper Science and
product values. They do not reflect Technology Fund Index represents an
*Series II shares were first offered sales charges, expenses and fees at the average of the performance of the 30
4/2/02. Returns prior to that date are separate account level. Sales charges, largest science and technology funds
hypothetical results based on the expenses and fees, which are determined tracked by Lipper, Inc., an independent
performance of Series I shares from by the product issuers, will vary and mutual fund performance monitor.
12/31/93, adjusted to reflect Series II will lower the total return.
12b-1 fees. The Series I and Series II The unmanaged Pacific Stock Exchange
shares invest in the same portfolio of Had the advisor not waived fees Technology 100 Index (PSE Technology 100
securities and will have substantially and/or reimbursed expenses, returns Index) is a price-weighted index of 100
similar performance, except to the would have been lower. listed and over-the-counter technology
extent that expenses borne by each class stocks from 15 technology-related
differ. PRINCIPAL RISKS OF INVESTING IN THE FUND industries.
Current performance may be lower or Investing in a single-sector or The unmanaged Standard & Poor's
higher than the performance data quoted. single-region mutual fund may involve Composite Index of 500 Stocks (the S&P
Past performance cannot guarantee greater risk and potential reward than 500 Index) is an index of common stocks
comparable future results. Due to investing in a more diversified fund. frequently used as a general measure of
significant market volatility, results U.S. stock market performance.
of an investment made today may differ The fund may participate in the
substantially from the historical initial public offering (IPO) market in Bloomberg, Inc., is a well-known
performance shown. Please see your some market cycles. Because of the independent financial research and
financial advisor for more current fund's small asset base, any investment reporting firm.
performance. Fund performance figures the fund may make in IPOs may
are historical, and they reflect fund significantly affect the fund's total A direct investment cannot be made in
expenses, the reinvestment of return. As the fund's assets grow, the an index. Unless otherwise indicated,
distributions and changes in net asset impact of IPO investments will decline, index results include reinvested
value. The fund's investment return and which may reduce the effect of IPO dividends, and they do not reflect sales
principal value will fluctuate, so an investments on the fund's total return. charges. Performance of an index of
funds reflects fund expenses;
Investing in small and mid-size performance of a market index does not.
companies may involve risks not
associated with investing in more Industry classifications used in this
established companies. Also, small report are generally according to the
companies may have business risk, Global Industry Classification Standard,
significant stock price fluctuations and which was developed by and is the
illiquidity. exclusive property and a service mark of
Morgan Stanley Capital International
The value of the fund's shares is Inc. and Standard & Poor's.
particularly vulnerable to factors
affecting the technology and science A description of the policies and
industries, such as substantial procedures that the Fund uses to
government regulations and the need for determine how to vote proxies relating
government approvals, dependency on to portfolio securities is available
consumer and business acceptance as new without charge, upon request, by calling
technologies evolve, and large and rapid 800-959-4246, or on the AIM Web site,
price movements resulting from, among AIMinvestments.com.
other things, fierce competition in
these industries. Additional factors
affecting the technology and science
industries and the value of fund shares
include rapid
VINTE-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
DOMESTIC COMMON STOCKS-86.63%
APPLICATION SOFTWARE-6.89%
BEA Systems, Inc.(a) 25,700 $ 316,110
- --------------------------------------------------------------------
Citrix Systems, Inc.(a) 5,400 114,534
- --------------------------------------------------------------------
Fair Issac Corp. 2,400 117,984
- --------------------------------------------------------------------
FileNet Corp.(a) 5,100 138,108
- --------------------------------------------------------------------
Intuit Inc.(a) 4,700 248,677
- --------------------------------------------------------------------
Mercury Interactive Corp.(a) 4,600 223,744
- --------------------------------------------------------------------
Siebel Systems, Inc.(a) 18,600 257,982
====================================================================
1,417,139
====================================================================
AUTO PARTS & EQUIPMENT-1.18%
Gentex Corp. 5,500 242,880
====================================================================
BIOTECHNOLOGY-0.51%
Gilead Sciences, Inc.(a) 1,800 104,652
====================================================================
BROADCASTING & CABLE TV-0.95%
Comcast Corp.-Class A(a) 2,800 92,036
- --------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 3,000 103,350
====================================================================
195,386
====================================================================
COMMUNICATIONS EQUIPMENT-15.86%
ADTRAN, Inc. 2,800 86,800
- --------------------------------------------------------------------
Advanced Fibre Communications, Inc.(a) 4,300 86,645
- --------------------------------------------------------------------
Avaya Inc.(a) 10,800 139,752
- --------------------------------------------------------------------
Cisco Systems, Inc.(a) 45,100 1,095,479
- --------------------------------------------------------------------
Comverse Technology, Inc.(a) 2,900 51,011
- --------------------------------------------------------------------
Corning Inc.(a) 14,900 155,407
- --------------------------------------------------------------------
Emulex Corp.(a) 8,000 213,440
- --------------------------------------------------------------------
Foundry Networks, Inc.(a) 4,100 112,176
- --------------------------------------------------------------------
Juniper Networks, Inc.(a) 10,600 198,008
- --------------------------------------------------------------------
Lucent Technologies Inc.(a) 17,200 48,848
- --------------------------------------------------------------------
McDATA Corp.-Class A(a) 9,700 92,441
- --------------------------------------------------------------------
Motorola, Inc. 9,300 130,851
- --------------------------------------------------------------------
NetScreen Technologies, Inc.(a) 2,000 49,500
- --------------------------------------------------------------------
QLogic Corp.(a) 3,700 190,920
- --------------------------------------------------------------------
QUALCOMM Inc. 6,800 366,724
- --------------------------------------------------------------------
Sonus Networks, Inc.(a) 3,100 23,436
- --------------------------------------------------------------------
Sycamore Networks, Inc.(a) 13,300 69,692
- --------------------------------------------------------------------
3Com Corp.(a) 12,700 103,759
- --------------------------------------------------------------------
UTStarcom, Inc.(a) 1,300 48,191
====================================================================
3,263,080
====================================================================
COMPUTER HARDWARE-4.22%
Dell Inc.(a) 14,100 478,836
- --------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
COMPUTER HARDWARE-(CONTINUED)
Hewlett-Packard Co. 4,000 $ 91,880
- --------------------------------------------------------------------
International Business Machines Corp. 3,200 296,576
====================================================================
867,292
====================================================================
COMPUTER STORAGE & PERIPHERALS-4.38%
EMC Corp.(a) 46,400 599,488
- --------------------------------------------------------------------
Network Appliance, Inc.(a) 14,700 301,791
====================================================================
901,279
====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.01%
Affiliated Computer Services, Inc.-Class A(a) 1,900 103,474
- --------------------------------------------------------------------
Paychex, Inc. 2,800 104,160
====================================================================
207,634
====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.14%
Amphenol Corp.-Class A(a) 2,300 147,039
- --------------------------------------------------------------------
Vishay Intertechnology, Inc.(a) 3,800 87,020
====================================================================
234,059
====================================================================
ELECTRONIC MANUFACTURING SERVICES-2.38%
Jabil Circuit, Inc.(a) 6,700 189,610
- --------------------------------------------------------------------
KEMET Corp.(a) 3,100 42,439
- --------------------------------------------------------------------
Sanmina-SCI Corp.(a) 15,200 191,672
- --------------------------------------------------------------------
Solectron Corp.(a) 11,200 66,192
====================================================================
489,913
====================================================================
HEALTH CARE EQUIPMENT-0.96%
Boston Scientific Corp.(a) 5,400 198,504
====================================================================
HOME ENTERTAINMENT SOFTWARE-0.63%
Electronic Arts Inc.(a) 2,700 129,006
====================================================================
INTERNET RETAIL-1.63%
eBay Inc.(a) 5,200 335,868
====================================================================
INTERNET SOFTWARE & SERVICES-3.74%
VeriSign, Inc.(a) 18,900 308,070
- --------------------------------------------------------------------
Yahoo! Inc.(a) 10,200 460,734
====================================================================
768,804
====================================================================
IT CONSULTING & OTHER SERVICES-0.51%
Anteon International Corp.(a) 2,900 104,545
====================================================================
MOVIES & ENTERTAINMENT-1.24%
Time Warner Inc.(a) 14,200 255,458
====================================================================
</Table>
AIM V.I. NEW TECHNOLOGY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
OFFICE ELECTRONICS-0.48%
Zebra Technologies Corp.-Class A(a) 1,500 $ 99,555
====================================================================
SEMICONDUCTOR EQUIPMENT-6.47%
Applied Materials, Inc.(a) 17,700 397,365
- --------------------------------------------------------------------
Asyst Technologies, Inc.(a) 3,400 58,990
- --------------------------------------------------------------------
Axcelis Technologies, Inc.(a) 3,500 35,770
- --------------------------------------------------------------------
KLA-Tencor Corp.(a) 3,600 211,212
- --------------------------------------------------------------------
Lam Research Corp.(a) 10,400 335,920
- --------------------------------------------------------------------
Novellus Systems, Inc.(a) 3,600 151,380
- --------------------------------------------------------------------
Teradyne, Inc.(a) 5,500 139,975
====================================================================
1,330,612
====================================================================
SEMICONDUCTORS-20.58%
Agere Systems Inc.-Class A(a) 26,800 81,740
- --------------------------------------------------------------------
Altera Corp.(a) 9,900 224,730
- --------------------------------------------------------------------
Analog Devices, Inc. 4,100 187,165
- --------------------------------------------------------------------
Broadcom Corp.-Class A(a) 7,300 248,857
- --------------------------------------------------------------------
Cypress Semiconductor Corp.(a) 7,800 166,608
- --------------------------------------------------------------------
Fairchild Semiconductor International,
Inc.(a) 1,700 42,449
- --------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 1,100 31,339
- --------------------------------------------------------------------
Intel Corp. 31,900 1,027,180
- --------------------------------------------------------------------
Intersil Corp.-Class A 5,800 144,130
- --------------------------------------------------------------------
Linear Technology Corp. 7,000 294,490
- --------------------------------------------------------------------
Maxim Integrated Products, Inc. 6,500 323,700
- --------------------------------------------------------------------
Microchip Technology Inc. 9,400 313,584
- --------------------------------------------------------------------
National Semiconductor Corp.(a) 6,900 271,929
- --------------------------------------------------------------------
PMC-Sierra, Inc.(a) 4,000 80,600
- --------------------------------------------------------------------
Texas Instruments Inc. 13,500 396,630
- --------------------------------------------------------------------
Vitesse Semiconductor Corp.(a) 21,200 124,444
- --------------------------------------------------------------------
Xilinx, Inc.(a) 7,100 275,054
====================================================================
4,234,629
====================================================================
SYSTEMS SOFTWARE-10.41%
Adobe Systems Inc. 3,400 133,620
- --------------------------------------------------------------------
Computer Associates International, Inc. 8,300 226,922
- --------------------------------------------------------------------
Microsoft Corp. 26,900 740,826
- --------------------------------------------------------------------
Oracle Corp.(a) 23,800 314,160
- --------------------------------------------------------------------
Symantec Corp.(a) 9,400 325,710
- --------------------------------------------------------------------
VERITAS Software Corp.(a) 10,800 401,328
====================================================================
2,142,566
====================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.46%
Nextel Communications, Inc.-Class A(a) 6,800 190,808
- --------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 8,100 108,945
====================================================================
299,753
====================================================================
Total Domestic Common Stocks (Cost
$14,617,760) 17,822,614
====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-13.47%
BERMUDA-1.45%
Accenture Ltd.-Class A (IT Consulting & Other
Services)(a) 6,300 $ 165,816
- --------------------------------------------------------------------
Marvell Technology Group Ltd.
(Semiconductors)(a) 3,500 132,755
====================================================================
298,571
====================================================================
CANADA-1.46%
Cognos, Inc. (Application Software)(a) 4,500 137,790
- --------------------------------------------------------------------
Nortel Networks Corp. (Communications
Equipment)(a) 38,300 162,009
====================================================================
299,799
====================================================================
CAYMAN ISLANDS-0.23%
Seagate Technology (Computer Storage &
Peripherals) 2,550 48,195
====================================================================
FINLAND-0.75%
Nokia Oyj-ADR (Communications Equipment) 9,100 154,700
====================================================================
FRANCE-1.21%
Alcatel S.A.-ADR (Communications
Equipment)(a) 11,620 149,317
- --------------------------------------------------------------------
Business Objects S.A.-ADR (Application
Software)(a) 2,900 100,543
====================================================================
249,860
====================================================================
GERMANY-1.56%
SAP A.G.-ADR (Application Software) 7,700 320,012
====================================================================
ISRAEL-0.47%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 1,700 96,407
====================================================================
JAPAN-0.28%
NEC Electronics Corp. (Semiconductors)
(Acquired 11/25/03; Cost $58,418)(b) 800 58,420
====================================================================
NETHERLANDS-0.91%
ASML Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 9,300 186,465
====================================================================
SINGAPORE-1.62%
Chartered Semiconductor Manufacturing
Ltd.-ADR (Semiconductors)(a) 7,800 78,546
- --------------------------------------------------------------------
Flextronics International Ltd. (Electronic
Manufacturing Services)(a) 17,100 253,764
====================================================================
332,310
====================================================================
SOUTH KOREA-0.64%
Samsung Electronics Co., Ltd.-GDR REGS
(Electronic Equipment Manufacturers)
(Acquired 11/25/03; Cost $130,963)(b)(c) 700 131,600
====================================================================
SWEDEN-0.91%
Ericsson (LM) Telefonaktiebolaget-ADR
(Communications Equipment)(a) 10,600 187,620
====================================================================
</Table>
AIM V.I. NEW TECHNOLOGY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
TAIWAN-1.17%
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors)(a) 15,859 $ 162,396
- --------------------------------------------------------------------
United Microelectronics Corp.-ADR
(Semiconductors)(a) 15,900 78,705
====================================================================
241,101
====================================================================
UNITED KINGDOM-0.81%
Amdocs Ltd. (Application Software)(a) 4,500 101,160
- --------------------------------------------------------------------
Vodafone Group PLC-ADR (Wireless
Telecommunication Services) 2,600 65,104
====================================================================
166,264
====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $2,492,974) 2,771,324
====================================================================
TOTAL INVESTMENTS-100.10% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $17,110,734) 20,593,938
====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-8.22%
Liquid Assets Portfolio(d)(e) 845,744 $ 845,744
- --------------------------------------------------------------------
STIC Prime Portfolio(d)(e) 845,744 845,744
====================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $1,691,488) 1,691,488
====================================================================
TOTAL INVESTMENTS-108.32% (Cost $18,802,222) 22,285,426
====================================================================
OTHER ASSETS LESS LIABILITIES-(8.32%) (1,711,862)
====================================================================
NET ASSETS-100.00% $20,573,564
____________________________________________________________________
====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
REGS - Regulation S
</Table>
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 these securities.
The aggregate market value of these securities at 12/31/03 was $190,020,
which represented 0.92% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Security considered to be illiquid. The market value of this security
considered illiquid at 12/31/03 represented 0.64% of the Fund's net assets.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) 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 accompanying notes which are an integral part of the financial statements.
AIM V.I. NEW TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$17,110,734)* $ 20,593,938
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,691,488) 1,691,488
- -------------------------------------------------------------
Receivables for:
Investments sold 157,506
- -------------------------------------------------------------
Fund shares sold 1,948
- -------------------------------------------------------------
Dividends 1,583
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 20,324
=============================================================
Total assets 22,466,787
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 103,549
- -------------------------------------------------------------
Fund shares reacquired 13,015
- -------------------------------------------------------------
Amount due custodian 24,686
- -------------------------------------------------------------
Deferred compensation and retirement plans 20,718
- -------------------------------------------------------------
Collateral upon return of securities loaned 1,691,488
- -------------------------------------------------------------
Accrued administrative services fees 12,130
- -------------------------------------------------------------
Accrued distribution fees -- Series II 62
- -------------------------------------------------------------
Accrued transfer agent fees 604
- -------------------------------------------------------------
Accrued operating expenses 26,971
=============================================================
Total liabilities 1,893,223
=============================================================
Net assets applicable to shares outstanding $ 20,573,564
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 67,555,385
- -------------------------------------------------------------
Undistributed net investment income (loss) (20,489)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
option contracts (50,444,536)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 3,483,204
=============================================================
$ 20,573,564
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 20,472,401
_____________________________________________________________
=============================================================
Series II $ 101,163
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 5,821,884
_____________________________________________________________
=============================================================
Series II 28,847
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 3.52
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 3.51
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of $1,657,153
were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$1,246) $ 19,053
- ------------------------------------------------------------
Dividends from affiliated money market funds** 35,773
============================================================
Total investment income 54,826
============================================================
EXPENSES:
Advisory fees 172,440
- ------------------------------------------------------------
Administrative services fees 90,109
- ------------------------------------------------------------
Custodian fees 24,180
- ------------------------------------------------------------
Distribution fees -- Series II 171
- ------------------------------------------------------------
Transfer agent fees 7,031
- ------------------------------------------------------------
Trustees' fees 8,801
- ------------------------------------------------------------
Professional fees 22,450
- ------------------------------------------------------------
Other 10,334
============================================================
Total expenses 335,516
============================================================
Less: Fees waived and expense offset
arrangements (111,426)
============================================================
Net expenses 224,090
============================================================
Net investment income (loss) (169,264)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 3,340,137
- ------------------------------------------------------------
Foreign currencies (252)
- ------------------------------------------------------------
Option contracts written 10,251
============================================================
3,350,136
============================================================
Change in net unrealized appreciation of
investment securities 3,878,997
============================================================
Net gain from investment securities, foreign
currencies and option contracts 7,229,133
============================================================
Net increase in net assets resulting from
operations $7,059,869
____________________________________________________________
============================================================
</Table>
** Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. NEW TECHNOLOGY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (169,264) $ (261,922)
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and option contracts 3,350,136 (9,314,279)
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 3,878,997 (4,612,766)
=========================================================================================
Net increase (decrease) in net assets resulting from
operations 7,059,869 (14,188,967)
=========================================================================================
Share transactions-net:
Series I (1,187,477) (5,805,609)
- -----------------------------------------------------------------------------------------
Series II 53,427 28,202
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,134,050) (5,777,407)
=========================================================================================
Net increase (decrease) in net assets 5,925,819 (19,966,374)
=========================================================================================
NET ASSETS:
Beginning of year 14,647,745 34,614,119
=========================================================================================
End of year (including undistributed net investment income
(loss) of $(20,489) and $(17,374) for 2003 and 2002,
respectively) $20,573,564 $ 14,647,745
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. NEW TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. New 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
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. 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.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. NEW TECHNOLOGY FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, 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.
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.
I. 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.
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 AIM at the annual rate of 1.00% of the Fund's
average daily net assets. AIM has contractually agreed to waive fees and /or
reimburse expenses of Series I and Series II shares to the extent necessary to
limit the expenses (excluding Rule 12b-1 plan fees, if any, interest, taxes,
fund merger and reorganization expenses, extraordinary items, including other
items designated as such by the Board of Trustees and increases in expenses due
to expense offset arrangements, if any) of each Series to 1.30% through December
31, 2004. 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). For the year ended December 31,
2003, AIM waived fees of $111,355.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $90,109 for such services,
of which AIM retained $50,000 for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $7,274 for such
services.
AIM V.I. NEW TECHNOLOGY FUND
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $103 after AIM Distributors waived
Plan fees of $68.
Certain officers and trustees of the Trust are officers 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 and
cash collateral from securities lending transactions in affiliated money market
funds. Each day the prior day's balance invested in the affiliated money market
fund is redeemed in full and a new purchase amount is submitted to invest the
current day's available cash and/or cash collateral received from securities
lending transactions. The table below shows the transactions in and earnings
from investments in affiliated money market funds for the period ended December
31, 2003.
<Table>
<Caption>
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 543,970 $4,913,900 $ (5,457,870) $ -- $ -- $ 3,124 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 543,970 4,913,900 (5,457,870) -- -- 3,239 --
=================================================================================================================================
Subtotal $1,087,940 $9,827,800 $(10,915,740) $ -- $ -- $ 6,363 $ --
=================================================================================================================================
</Table>
<Table>
<Caption>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ -- $ 8,642,273 $(7,796,529) $ -- $ 845,744 $14,956 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio -- 8,611,364 (7,765,620) -- 845,744 14,454 --
=================================================================================================================================
Subtotal $ -- $17,253,637 $(15,562,149) $ -- $1,691,488 $29,410 $ --
=================================================================================================================================
Total $1,087,940 $27,081,437 $(26,477,889) $ -- $1,691,488 $35,773 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of fees paid to the security lending counterparties of
$1,743.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$1 and reductions in custodian fees of $2 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $3.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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.
During the year ended December 31, 2003, the Fund paid legal fees of $3,600
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and
AIM V.I. NEW TECHNOLOGY FUND
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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of 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, 2003, securities with an aggregate value of $1,657,153 were
on loan to brokers. The loans were secured by cash collateral of $1,691,488
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2003, the Fund received dividends on cash
collateral net of fees paid to counterparties of $29,410 for securities lending
transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------
Beginning of year -- $ --
- --------------------------------------------------------------------------------
Written 80 10,251
- --------------------------------------------------------------------------------
Expired (80) (10,251)
================================================================================
End of year -- $ --
________________________________________________________________________________
================================================================================
</Table>
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, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 3,390,016
- --------------------------------------------------------------------------------
Temporary book/tax differences (21,413)
- --------------------------------------------------------------------------------
Capital loss carryforward (50,350,172)
- --------------------------------------------------------------------------------
Post-October foreign currency loss deferral (252)
- --------------------------------------------------------------------------------
Shares of beneficial interest 67,555,385
================================================================================
Total net assets $20,573,564
________________________________________________________________________________
================================================================================
</Table>
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 to the tax deferral of losses on wash
sales, the deferral for tax purposes on certain straddle transactions and the
tax treatment of foreign tax on certain stock dividends.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- --------------------------------------------------------------------------------
December 31, 2009 $41,103,653
- --------------------------------------------------------------------------------
December 31, 2010 9,246,519
================================================================================
Total capital loss carryforward $50,350,172
________________________________________________________________________________
================================================================================
</Table>
AIM V.I. NEW TECHNOLOGY FUND
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, 2003 was $21,399,271 and $22,007,903, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $3,584,034
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (194,018)
============================================================
Net unrealized appreciation of investment
securities $3,390,016
____________________________________________________________
============================================================
Cost of investments for tax purposes is $18,895,410.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on December 31, 2003, undistributed net
investment income was increased by $166,149, undistributed net realized gains
increased by $252 and shares of beneficial interest decreased by $166,401. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2003 2002
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,456,539 $ 4,372,901 966,802 $ 2,977,433
- --------------------------------------------------------------------------------------------------------------------
Series II* 177,932 587,571 27,100 76,719
====================================================================================================================
Reacquired:
Series I (1,959,518) (5,560,378) (2,859,709) (8,783,042)
- --------------------------------------------------------------------------------------------------------------------
Series II* (154,836) (534,144) (21,349) (48,517)
====================================================================================================================
(479,883) $(1,134,050) (1,887,156) $(5,777,407)
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
* Series II shares commenced sales on April 2, 2002.
AIM V.I. NEW TECHNOLOGY FUND
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 2.31 $ 4.21 $ 18.53 $ 32.96 $ 20.66
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.04)(a) (0.05) 0.20 (0.14)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.24 (1.86) (8.79) (11.05) 18.46
========================================================================================================================
Total from investment operations 1.21 (1.90) (8.84) (10.85) 18.32
========================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.21) -- --
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (5.27) (3.58) (6.02)
========================================================================================================================
Total distributions -- -- (5.48) (3.58) (6.02)
========================================================================================================================
Net asset value, end of period $ 3.52 $ 2.31 $ 4.21 $ 18.53 $ 32.96
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 52.38% (45.13)% (47.47)% (36.29)% 106.52%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,472 $14,634 $34,614 $69,310 $108,428
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.30%(c) 1.30% 1.36% 1.31% 1.27%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.94%(c) 1.71% 1.49% 1.31% 1.27%
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.98)%(c) (1.22)% (1.14)% 0.74% (0.62)%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 128% 144% 289% 131% 124%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America. Total returns do not reflect
charges at the separate account level which if included would reduce
total returns for all periods shown.
(c) Ratios are based on average daily net assets of $17,175,645.
AIM V.I. NEW TECHNOLOGY FUND
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------
APRIL 2, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 2.31 $ 3.69
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.03)(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.24 (1.35)
==============================================================================================
Total from investment operations 1.20 (1.38)
==============================================================================================
Net asset value, end of period $ 3.51 $ 2.31
______________________________________________________________________________________________
==============================================================================================
Total return(b) 51.95% (37.40)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 101 $ 13
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.45%(c) 1.45%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 2.19%(c) 1.96%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.13)%(c) (1.37)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 128% 144%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $68,396.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of
AIM V.I. NEW TECHNOLOGY FUND
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Financial Services, the Commissioner of Securities for the State of Georgia, the
Office of the State Auditor for the State of West Virginia, and the Office of
the Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
NOTE 15--SIGNIFICANT EVENTS
On December 9, 2003, the Board of Trustees approved an Agreement and Plan of
Reorganization (the "Plan") under which all of the assets of the Fund will be
transferred to INVESCO VIF-Technology Fund ("Buying Fund"), an investment
portfolio of INVESCO Variable Investment Funds, Inc. ("Buyer"). The Buyer will
issue shares of each class of the Buying Fund to shareholders of the
corresponding class of shares of the Fund. The Plan requires approval of the
Fund's shareholders and will be submitted to the shareholders for their
consideration at a special meeting to be held on March 26, 2004. If the Plan is
approved by the shareholders of the Fund and certain conditions required by the
Plan are satisfied, the transaction is expected to become effective on or about
April 30, 2004.
AIM V.I. NEW TECHNOLOGY FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
New Technology Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the years or periods in the five year period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. New Technology Fund as of December 31, 2003, 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 years or
period in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. NEW TECHNOLOGY FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director and Vice
President Chairman, AMVESCAP PLC and Chairman of 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 Officer, A I M None
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President 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), and Fund Management Company (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. and 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
- ----------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- ----------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates (technology ACE Limited (insurance
Trustee consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business Cortland Trust, Inc.
Trustee corporations, including the Boss Group Ltd. (private (Chairman) (registered
investment and management) and Magellan Insurance Company investment company);
Formerly: Director, President and Chief Executive Officer, Annuity and Life Re
Volvo Group North America, Inc.; Senior Vice President, AB (Holdings), Ltd.
Volvo; and director of various affiliated Volvo companies (insurance company)
- ----------------------------------------------------------------------------------------------------------------------------------
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 Century Group, Inc. Administaff, Discovery
Trustee (government affairs company) and Texana Timber LP Global Education Fund
(sustainable forestry company) (non-profit)
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. NEW TECHNOLOGY FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations None
Trustee Hines Interests Limited Partnership (real estate
development company)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General N/A
Senior Vice President and Chief Counsel, A I M Management Group Inc. (financial
Legal Officer services holding company) and A I M Advisors, Inc.; Vice
President, A I M Capital Management, Inc., A I M
Distributors, Inc. and AIM Investment Services, Inc.;
and Director, Vice President and General Counsel, Fund
Management Company Formerly: Senior Vice President and
General Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel, Liberty Funds
Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, Chief Fixed Income Officer and Senior N/A
Vice President 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 Market Research N/A
Vice President and Special Projects, A I M Capital Management, Inc.;
and Vice President, A I M Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance Officer, A I M N/A
Vice President Advisors, Inc. and A I M Capital Management, Inc.; and
Vice President, AIM Investment Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management Officer, A I M N/A
Vice President Capital Management, Inc; Director and President, Fund
Management Company; and Vice President, A I M Advisors,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and President, N/A
Vice President Chief Executive Officer and Chief Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
AIM V.I. NEW TECHNOLOGY FUND
AIM V.I. PREMIER EQUITY FUND
December 31, 2003
ANNUAL REPORT
AIM V.I. PREMIER EQUITY FUND seeks long-term growth of capital.
Income is a secondary objective.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. PREMIER EQUITY FUND
AIM V.I. PREMIER EQUITY FUND
POSTS DOUBLE-DIGIT RETURNS FOR 2003
AIM V.I. Premier Equity Fund finished mately 20.5% had reported earnings that Virtually all sectors of the S&P 500
the fiscal year ended December 31, 2003, met those estimates. Index made positive contributions to the
with total returns at net asset value of fund during the fiscal year. The
25.08% for Series I shares and 24.83% By October, the Fed reported that consumer discretionary and
for Series II shares. By comparison the economic expansion had increased and telecommunications services sectors were
fund's benchmarks, the S&P 500--Registered consumer spending was generally the strongest contributors. Within the
Trademark-- Index and the Lipper Large-Cap stronger. consumer discretionary sector, our
Core Fund Index, returned 28.67% and overweight position in retail and media
24.80%, respectively, for the year. All sectors of the S&P 500 Index stocks helped drive strong fund
recorded gains for the fiscal year. performance.
MARKET CONDITIONS Information technology, consumer
discretionary and materials were the Consumer strength remained solid
Amid a backdrop of generally improving top-performing sectors while throughout the year, improving earnings
economic conditions, the S&P 500 Index telecommunication services, consumer and sentiment in the retail sector.
declined at the beginning of 2003, staples and health care were the Media companies benefited from the
dropping to its lowest level of the year weakest-performing sectors. resumption of ad spending, as
on March 11. The index then rallied, corporations' outlooks brightened. Our
posting a cumulative total return of Small- and mid-cap stocks generally underweight position in regional Bell
40.86% from its low through the end of outperformed large-cap stocks for the operating companies and overweight
the reporting period. year. The performance of growth and position in wireless services companies
value stocks was similar, although helped performance in
The nation's gross domestic product, mid-cap growth stocks generally telecommunications.
generally considered the broadest outperformed their value counterparts.
measure of economic activity, expanded Holdings in the financials and
at an annualized rate of 3.1% in the YOUR FUND information technology sectors generally
second quarter, 8.2% in the third hindered the fund's performance during
quarter, and 4.0% in the fourth quarter During the past year, AIM added managers the period. Within both sectors, the
of 2003. As of the close of the year, with specific sector expertise to build fund owned many companies that made
approximately 64% of the companies in on the tactical changes made early in positive contributions to the fund's
the S&P 500 Index had reported the third quarter of 2002. At that time, performance. Within both sectors the
third-quarter earnings that exceeded managers and analysts changed from being fund owned many companies that
analysts' expectations while approxi- generalists to focusing on specific contributed positively to the fund's
sectors and industries to identify performance. However, because of the
stocks for the portfolio. fund's large-cap focus, the fund did not
own several small companies that
resulted in better performance for the
fund's benchmark.
Within the technology sector, we had
less exposure to the more economically
sensitive
</Table>
<Table>
<Caption>
===================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- -----------------------------------------------------------------------------------------------------------------------------------
1. Pfizer,Inc. 4.0% 1. Pharmaceuticals 8.1% Total returns 12/31/02-12/31/03,
2. Citigroup Inc. 3.9 2. Industrial Conglomerates 5.9 excluding product issuer charges
3. Microsoft Corp. 3.6 3. Systems Software 5.3
4. General Electric Co. 3.6 4. Integrated Oil & Gas 4.7 Series I Shares 25.08%
5. Exxon Mobil Corp. 2.8 5. Other Diversified Financial Series II Shares 24.83
6. American International Services 3.9 S&P 500 Index 28.67
Group, Inc. 2.5 6. Diversified Banks 3.8 (Broad Market Index)
7. Fannie Mae 2.3 7. Computer Hardware 3.6 Lipper Large-Cap Core
8. Procter & Gamble Co. 2.1 8. Household Products 3.4 Fund Index 24.80
9. Intel Corp. 2.1 9. Semiconductors 3.3 (Peer Group Index)
10. Bank of America Corp. 2.0 10. Investment Banking & Brokerage 3.2 Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 95
TOTAL NET ASSETS $1.77 Billion
===================================================================================================================================
</Table>
<Table>
===================================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
ROBERT A. SHELTON, LEAD MANAGER
ABEL GARCIA
KELLIE K. VEAZEY
MEGGAN M. WALSH
MICHAEL YELLEN
ASSISTED BY THE PREMIER EQUITY TEAM
===================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
AIM V.I. PREMIER EQUITY FUND
companies than the fund's benchmark, and RESULTS OF A $10,000 INVESTMENT
we missed the performance opportunity. 5/05/93-12/31/03
Our strategy for long-term consistent Index data from 4/30/93
growth precludes our focusing purely on
economically sensitive stocks such as [LINE CHART]
many of those in the technology sector.
Thus, the underperformance of less LIPPER LARGE-CAP AIM V.I. PREMIER
economically sensitive companies S&P 500 INDEX CORE FUND INDEX EQUITY FUND-SERIES I
somewhat dampened the fund's
performance.
5/5/1993 10000 10000 10000
During the year, we added materials 12/31/1993 10807 10891 11482
sector stocks to the fund's portfolio 12/31/1994 10949 10774 11946
and significantly boosted holdings in 12/31/1995 15058 14195 16278
industrials and information technology. 12/31/1996 18513 17012 18722
As expectations became too high in the 12/31/1997 24687 21983 23157
consumer discretionary sector, we 12/31/1998 31748 27904 30661
significantly decreased the fund's 12/31/1999 38425 33304 39835
holdings in that sector. 12/31/2000 34928 30850 34002
12/31/2001 30780 26890 29728
Among the portfolio's top-performing 12/31/2002 23980 21180 20734
equities was Citigroup Inc., which in 12/31/2003 30854 26434 25927
2003 overtook Japan's Mizuho Financial Source: Lipper, Inc.
to become the world's largest financial Past performance cannot guarantee comparable future results.
services firm. In September, the company
reported third-quarter earnings of $4.69 In evaluating this chart, please note that the chart uses a logarithmic scale
billion, a 27% increase over the prior along the vertical axis (the value scale). This means that each scale increment
year and a company record. Another always represents the same percent change in price; in a linear chart each scale
strong contributor was Best Buy Co., increment always represents the same absolute change in price. In this example,
Inc., the nation's leading consumer the scale increment between $5,000 and $10,000 is the same as that between
electronics retailer, which announced a $10,000 and $20,000. In a linear chart, the latter scale increment would be
42% increase in third-quarter earnings. twice as large. The benefit of using a logarithmic scale is that it better
We sold the stock to secure profits for illustrates performance during the fund's early years before reinvested
the portfolio when we thought sales distributions and compounding create the potential for the original investment
estimates became unrealistically high in to grow to very large numbers. Had the chart used a linear scale along its
November and December. 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. AIM uses a
Detracting from fund performance was logarithmic scale in financial reports of funds that have more than five years
HCA Inc., one of the nation's top of performance history.
hospital operators, which experienced an
unexpected shortfall in patient volume AVERAGE ANNUAL TOTAL RETURNS reflect actual variable product values.
and an increase in bad debt during the --------------------------------------- They do not reflect sales charges,
first quarter of 2003. As of 12/31/03 expenses and fees at the separate
account level. These sales charges,
IN CLOSING SERIES I SHARES expenses and fees, which are determined
Inception (5/5/93) 9.35% by the product issuers, will vary and
The fund's management team continues to 10 Years 8.49 will lower the total return.
work diligently to meet the fund's 5 Years -3.30
objective of seeking long-term capital 1 Year 25.08 PRINCIPAL RISKS OF INVESTING IN THE FUND
growth by investing in stocks of
companies that are undervalued relative SERIES II SHARES* By prospectus, the fund may invest up to
to the stock market as a whole, and that 10 Years 8.22 25% of its total assets in foreign
can provide growth with income as a 5 Years -3.53 securities. International investing
secondary objective. Our investment 1 Year 24.83 presents certain risks not associated
discipline focuses on investing in with investing soley in the United
large-cap companies that we believe have *Series II shares were first offered States. These include risks relating to
the ability to provide consistent 9/19/01. Returns prior to that date are fluctuations in the value of the U.S.
long-term growth. hypothetical results based on the dollar relative to the values of other
performance of Series I shares from currencies, the custody arrangements
12/31/93, adjusted to reflect Series II made for the fund's foreign holdings,
12b-1 fees. The Series I and Series II differences in accounting, political
shares invest in the same portfolio of risks and the lesser degree of public
securities and will have substantially information required to be provided by
similar performance, except to the non-U.S. companies.
extent that expenses borne by each class
differ. ABOUT INDEXES USED IN THIS REPORT
Current performance may be lower or The unmanaged Standard & Poor's
higher than the performance data quoted. Composite Index of 500 Stocks (the S&P
Past performance cannot guarantee 500) is an index of common stocks
comparable future results. Due to frequently used as a general measure of
significant market volatility, results U.S. stock market performance.
of an investment made today may differ
substantially from the historical The unmanaged Lipper Large-Cap Core
performance shown. Please see your Fund Index represents an average of the
financial advisor for more current performance of the 30 largest
performance. Fund performance figures large-capitalization core equity funds
are historical, and they reflect fund tracked by Lipper, Inc., an independent
expenses, the reinvestment of mutual fund performance monitor.
distributions and changes in net asset
value. The fund's investment return and A direct investment cannot be made in
principal value will fluctuate, so an an index. Unless otherwise indicated,
investor's shares, when redeemed, may be index results include reinvested
worth more or less than their original dividends, and they do not reflect sales
cost. charges. Performance of an index of funds
reflects fund expenses; performance of a
AIM Variable Insurance Funds are market index does not.
offered through insurance company
separate accounts to fund variable Industry classifications used in this
annuity contracts and variable life report are generally according to the
insurance policies, and through certain Global Industry Classification Standard,
pension or retirement plans. Performance which was developed by and is the
figures given represent the fund and are exclusive property and a service mark of
not intended to Morgan Stanley Capital International
Inc. and Standard & Poor's.
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, by calling
800-959-4246, or on the AIM Web site,
AIMinvestments.com.
VIPEQ-AR-1
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.87%
ADVERTISING-1.69%
Omnicom Group Inc. 341,900 $ 29,858,127
==========================================================================
AEROSPACE & DEFENSE-1.42%
Lockheed Martin Corp. 282,200 14,505,080
- --------------------------------------------------------------------------
United Technologies Corp. 112,500 10,661,625
==========================================================================
25,166,705
==========================================================================
AIR FREIGHT & LOGISTICS-0.32%
FedEx Corp. 84,850 5,727,375
==========================================================================
AIRLINES-0.65%
Southwest Airlines Co. 712,600 11,501,364
==========================================================================
ALUMINUM-0.31%
Alcoa Inc. 144,000 5,472,000
==========================================================================
APPAREL RETAIL-0.51%
Gap, Inc. (The) 391,500 9,086,715
==========================================================================
APPLICATION SOFTWARE-1.28%
SAP A.G.-ADR (Germany) 366,000 15,210,960
- --------------------------------------------------------------------------
BEA Systems, Inc.(a) 608,300 7,482,090
==========================================================================
22,693,050
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.40%
Bank of New York Co., Inc. (The) 750,400 24,853,248
==========================================================================
BIOTECHNOLOGY-1.55%
Amgen Inc.(a) 443,100 27,383,580
==========================================================================
BREWERS-0.98%
Anheuser-Busch Cos., Inc. 331,200 17,447,616
==========================================================================
BROADCASTING & CABLE TV-3.01%
Clear Channel Communications, Inc. 189,600 8,878,968
- --------------------------------------------------------------------------
Comcast Corp.-Class A(a) 138,699 4,559,036
- --------------------------------------------------------------------------
Comcast Corp.-Special Class A(a) 872,800 27,301,184
- --------------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 363,000 12,505,350
==========================================================================
53,244,538
==========================================================================
BUILDING PRODUCTS-0.56%
American Standard Cos. Inc.(a) 99,300 9,999,510
==========================================================================
COMMUNICATIONS EQUIPMENT-2.89%
Nokia Oyj-ADR (Finland) 980,000 16,660,000
- --------------------------------------------------------------------------
Cisco Systems, Inc.(a) 1,421,900 34,537,951
==========================================================================
51,197,951
==========================================================================
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
COMPUTER HARDWARE-3.65%
Dell Inc.(a) 1,031,500 $ 35,029,740
- --------------------------------------------------------------------------
International Business Machines Corp. 319,900 29,648,332
==========================================================================
64,678,072
==========================================================================
CONSUMER FINANCE-1.27%
American Express Co. 315,200 15,202,096
- --------------------------------------------------------------------------
SLM Corp. 192,500 7,253,400
==========================================================================
22,455,496
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.19%
Affiliated Computer Services, Inc.-Class A(a) 249,800 13,604,108
- --------------------------------------------------------------------------
Paychex, Inc. 199,800 7,432,560
==========================================================================
21,036,668
==========================================================================
DEPARTMENT STORES-0.48%
Federated Department Stores, Inc. 182,000 8,577,660
==========================================================================
DIVERSIFIED BANKS-3.77%
Bank of America Corp. 444,700 35,767,221
- --------------------------------------------------------------------------
U.S. Bancorp 282,700 8,418,806
- --------------------------------------------------------------------------
Wells Fargo & Co. 383,400 22,578,426
==========================================================================
66,764,453
==========================================================================
DIVERSIFIED CAPITAL MARKETS-0.70%
J.P. Morgan Chase & Co. 336,500 12,359,645
==========================================================================
DIVERSIFIED CHEMICALS-0.90%
Dow Chemical Co. (The) 150,000 6,235,500
- --------------------------------------------------------------------------
E. I. du Pont de Nemours & Co. 210,100 9,641,489
==========================================================================
15,876,989
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.34%
Cendant Corp.(a) 841,300 18,735,751
- --------------------------------------------------------------------------
Cintas Corp. 99,800 5,002,974
==========================================================================
23,738,725
==========================================================================
DRUG RETAIL-0.48%
Walgreen Co. 232,200 8,447,436
==========================================================================
ENVIRONMENTAL SERVICES-0.99%
Waste Management, Inc. 591,000 17,493,600
==========================================================================
FOOTWEAR-1.00%
NIKE, Inc.-Class B 259,600 17,772,216
==========================================================================
GENERAL MERCHANDISE STORES-1.71%
Target Corp. 788,000 30,259,200
==========================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-0.96%
Guidant Corp. 122,900 $ 7,398,580
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 156,200 9,582,870
==========================================================================
16,981,450
==========================================================================
HEALTH CARE FACILITIES-0.65%
HCA Inc. 267,600 11,496,096
==========================================================================
HOME IMPROVEMENT RETAIL-0.83%
Home Depot, Inc. (The) 415,600 14,749,644
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.54%
Starwood Hotels & Resorts Worldwide, Inc. 264,500 9,514,065
==========================================================================
HOUSEHOLD PRODUCTS-3.35%
Clorox Co. (The) 272,600 13,237,456
- --------------------------------------------------------------------------
Colgate-Palmolive Co. 180,500 9,034,025
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 371,700 37,125,396
==========================================================================
59,396,877
==========================================================================
HYPERMARKETS & SUPER CENTERS-2.01%
Wal-Mart de Mexico S.A. de C.V.-Series V
(Mexico) 3,296,500 9,402,217
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 495,600 26,291,580
==========================================================================
35,693,797
==========================================================================
INDUSTRIAL CONGLOMERATES-5.88%
Tyco International Ltd. (Bermuda) 920,000 24,380,000
- --------------------------------------------------------------------------
3M Co. 190,500 16,198,215
- --------------------------------------------------------------------------
General Electric Co. 2,050,100 63,512,098
==========================================================================
104,090,313
==========================================================================
INDUSTRIAL MACHINERY-2.57%
Ingersoll-Rand Co.-Class A (Bermuda) 137,500 9,333,500
- --------------------------------------------------------------------------
Danaher Corp. 337,900 31,002,325
- --------------------------------------------------------------------------
Dover Corp. 132,000 5,247,000
==========================================================================
45,582,825
==========================================================================
INTEGRATED OIL & GAS-4.72%
BP PLC-ADR (United Kingdom) 378,600 18,683,910
- --------------------------------------------------------------------------
ConocoPhillips 220,900 14,484,413
- --------------------------------------------------------------------------
Exxon Mobil Corp. 1,230,000 50,430,000
==========================================================================
83,598,323
==========================================================================
INVESTMENT BANKING & BROKERAGE-3.24%
Merrill Lynch & Co., Inc. 443,400 26,005,410
- --------------------------------------------------------------------------
Morgan Stanley 543,700 31,463,919
==========================================================================
57,469,329
==========================================================================
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
IT CONSULTING & OTHER SERVICES-0.63%
Accenture Ltd.-Class A (Bermuda)(a) 421,800 $ 11,101,776
==========================================================================
MANAGED HEALTH CARE-1.58%
Anthem, Inc.(a) 179,600 13,470,000
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 250,300 14,562,454
==========================================================================
28,032,454
==========================================================================
MOVIES & ENTERTAINMENT-1.12%
Viacom Inc.-Class B 445,500 19,771,290
==========================================================================
MULTI-LINE INSURANCE-2.49%
American International Group, Inc. 666,800 44,195,504
==========================================================================
OIL & GAS DRILLING-0.29%
GlobalSantaFe Corp. (Cayman Islands) 203,800 5,060,354
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.04%
Schlumberger Ltd. (Netherlands) 92,700 5,072,544
- --------------------------------------------------------------------------
BJ Services Co.(a) 131,800 4,731,620
- --------------------------------------------------------------------------
Halliburton Co. 334,900 8,707,400
==========================================================================
18,511,564
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.92%
Citigroup Inc. 1,431,000 69,460,740
==========================================================================
PHARMACEUTICALS-8.15%
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 105,300 5,971,563
- --------------------------------------------------------------------------
Allergan, Inc. 145,900 11,206,579
- --------------------------------------------------------------------------
Johnson & Johnson 421,200 21,759,192
- --------------------------------------------------------------------------
Lilly (Eli) & Co. 103,400 7,272,122
- --------------------------------------------------------------------------
Merck & Co. Inc. 190,400 8,796,480
- --------------------------------------------------------------------------
Pfizer Inc. 1,993,000 70,412,690
- --------------------------------------------------------------------------
Wyeth 445,300 18,902,985
==========================================================================
144,321,611
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.64%
Chubb Corp. (The) 165,500 11,270,550
==========================================================================
RESTAURANTS-1.06%
McDonald's Corp. 327,600 8,134,308
- --------------------------------------------------------------------------
Yum! Brands, Inc.(a) 310,600 10,684,640
==========================================================================
18,818,948
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.80%
Applied Materials, Inc.(a) 634,300 14,240,035
==========================================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SEMICONDUCTORS-3.32%
Analog Devices, Inc. 481,200 $ 21,966,780
- --------------------------------------------------------------------------
Intel Corp. 1,141,800 36,765,960
==========================================================================
58,732,740
==========================================================================
SOFT DRINKS-2.17%
Coca-Cola Co. (The) 437,400 22,198,050
- --------------------------------------------------------------------------
PepsiCo, Inc. 347,200 16,186,464
==========================================================================
38,384,514
==========================================================================
SPECIALTY STORES-0.52%
Staples, Inc.(a) 340,500 9,295,650
==========================================================================
SYSTEMS SOFTWARE-5.34%
Computer Associates International, Inc. 455,800 12,461,572
- --------------------------------------------------------------------------
Microsoft Corp. 2,316,900 63,807,426
- --------------------------------------------------------------------------
Oracle Corp.(a) 560,000 7,392,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 293,400 10,902,744
==========================================================================
94,563,742
==========================================================================
THRIFTS & MORTGAGE FINANCE-2.79%
Fannie Mae 533,300 40,029,498
- --------------------------------------------------------------------------
Freddie Mac 159,800 9,319,536
==========================================================================
49,349,034
==========================================================================
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
WIRELESS TELECOMMUNICATION SERVICES-1.21%
Vodafone Group PLC (United Kingdom) 3,977,910 $ 9,837,043
- --------------------------------------------------------------------------
Nextel Communications, Inc.-Class A(a) 411,700 11,552,302
==========================================================================
21,389,345
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,470,486,817) 1,698,164,509
==========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------------------------------------------------------------------------
U.S. TREASURY BILLS-0.32%
0.87%, 3/18/04 (Cost $5,739,362)(b) $ 5,750,000(c) $ 5,738,788
===========================================================================
Total U.S. Treasury Securities (Cost
$5,739,362) 5,738,788
===========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-3.82%
Liquid Assets Portfolio(d) 33,851,833 33,851,833
- ---------------------------------------------------------------------------
STIC Prime Portfolio(d) 33,851,833 33,851,833
===========================================================================
Total Money Market Funds (Cost
$67,703,666) 67,703,666
===========================================================================
TOTAL INVESTMENTS-100.01% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,543,929,845) 1,771,606,963
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.44%
Liquid Assets Portfolio(d)(e) 43,116,875 43,116,875
- ---------------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $43,116,875) 43,116,875
===========================================================================
TOTAL INVESTMENTS-102.45% (Cost
$1,587,046,720) 1,814,723,838
===========================================================================
OTHER ASSETS LESS LIABILITIES-(2.45%) (43,348,733)
===========================================================================
NET ASSETS-100.00% $1,771,375,105
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section H and Note 9.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) 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 3.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. PREMIER EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$1,476,226,179)* $1,703,903,297
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $110,820,541) 110,820,541
- -------------------------------------------------------------
Receivables for:
Variation margin 116,000
- -------------------------------------------------------------
Fund shares sold 574,595
- -------------------------------------------------------------
Dividends 1,410,196
- -------------------------------------------------------------
Investment for deferred compensation and
retirement plans 98,974
- -------------------------------------------------------------
Other assets 188
=============================================================
Total assets 1,816,923,791
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,245,331
- -------------------------------------------------------------
Deferred compensation and retirement plans 152,561
- -------------------------------------------------------------
Collateral upon return of securities loaned 43,116,875
- -------------------------------------------------------------
Accrued administrative services fees 976,288
- -------------------------------------------------------------
Accrued distribution fees -- Series II 12,526
- -------------------------------------------------------------
Accrued transfer agent fees 4,484
- -------------------------------------------------------------
Accrued operating expenses 40,621
=============================================================
Total liabilities 45,548,686
=============================================================
Net assets applicable to shares outstanding $1,771,375,105
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,376,692,742
- -------------------------------------------------------------
Undistributed net investment income 7,532,137
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign
currencies, foreign currency contracts,
futures contracts and option contracts (842,605,091)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, foreign
currency contracts and futures contracts 229,755,317
=============================================================
$1,771,375,105
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,748,961,285
_____________________________________________________________
=============================================================
Series II $ 22,413,820
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 86,446,438
_____________________________________________________________
=============================================================
Series II 1,113,135
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 20.23
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 20.14
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of
$41,921,760 were on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of
$66,705) $ 19,673,654
- -------------------------------------------------------------
Dividends from affiliated money market funds** 1,469,442
- -------------------------------------------------------------
Interest 111,346
=============================================================
Total investment income 21,254,442
=============================================================
EXPENSES:
Advisory fees 9,744,790
- -------------------------------------------------------------
Administrative services fees 3,647,783
- -------------------------------------------------------------
Custodian fees 65,242
- -------------------------------------------------------------
Distribution fees -- Series II 39,012
- -------------------------------------------------------------
Transfer agent fees 54,313
- -------------------------------------------------------------
Trustees' fees 30,360
- -------------------------------------------------------------
Other 39,455
=============================================================
Total expenses 13,620,955
=============================================================
Less: Fees waived and expense offset
arrangements (29,063)
=============================================================
Net expenses 13,591,892
=============================================================
Net investment income 7,662,550
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES,
FOREIGN CURRENCY CONTRACTS, FUTURES
CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (114,465,642)
- -------------------------------------------------------------
Foreign currencies (17,764)
- -------------------------------------------------------------
Foreign currency contracts (568,619)
- -------------------------------------------------------------
Futures contracts 12,551,818
- -------------------------------------------------------------
Option contracts written 82,495
=============================================================
(102,417,712)
=============================================================
Change in net unrealized appreciation of:
Investment securities 453,125,684
- -------------------------------------------------------------
Foreign currencies 3,319
- -------------------------------------------------------------
Foreign currency contracts 13,366
- -------------------------------------------------------------
Futures contracts 3,694,859
=============================================================
456,837,228
=============================================================
Net gain from investment securities, foreign
currencies, foreign currency contracts,
futures contracts and option contracts 354,419,516
=============================================================
Net increase in net assets resulting from
operations $ 362,082,066
_____________________________________________________________
=============================================================
</Table>
** Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. PREMIER EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 7,662,550 $ 4,811,600
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts (102,417,712) (437,099,882)
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts 456,837,228 (330,363,731)
===============================================================================================
Net increase (decrease) in net assets resulting from
operations 362,082,066 (762,652,013)
===============================================================================================
Distributions to shareholders from net investment income:
Series I (4,839,593) (6,192,808)
- -----------------------------------------------------------------------------------------------
Series II (46,580) (41,642)
===============================================================================================
Decrease in net assets resulting from distributions (4,886,173) (6,234,450)
===============================================================================================
Share transactions-net:
Series I (124,161,266) (271,364,143)
- -----------------------------------------------------------------------------------------------
Series II 7,981,573 11,802,858
===============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (116,179,693) (259,561,285)
===============================================================================================
Net increase (decrease) in net assets 241,016,200 (1,028,447,748)
===============================================================================================
NET ASSETS:
Beginning of year 1,530,358,905 2,558,806,653
===============================================================================================
End of year (including undistributed net investment income
of $7,532,137 and $4,773,524 for 2003 and 2002,
respectively) $1,771,375,105 $ 1,530,358,905
_______________________________________________________________________________________________
===============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. PREMIER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Premier 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
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. 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.
The Fund's primary investment objective is to achieve long-term growth of
capital. Income is a secondary objective. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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,
AIM V.I. PREMIER EQUITY FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, 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.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the future contracts.
I. 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.
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 AIM at the annual rate of 0.65% of the first
$250 million of the Fund's average daily net assets, plus 0.60% of the Fund's
average daily net assets in excess of $250 million. AIM has voluntarily agreed
to waive fees and/or reimburse expenses of Series I and Series II shares to the
extent necessary to limit the expenses (excluding Rule 12b-1 plan fees, if any,
interest, taxes, fund merger and reorganization expenses, extraordinary items,
including other items designated as such by the Board of Trustees and increases
in expenses due to expense offset arrangements, if any) of each Series to 1.30%.
Voluntary expense limitations may be modified or discontinued at any time
without further notice to investors. 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). For
the year ended December 31, 2003, AIM waived fees of $28,785.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the year ended December 31, 2003, the Fund paid AIM $3,647,783 of which AIM
retained $368,429 for services provided by AIM.
AIM V.I. PREMIER EQUITY FUND
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $59,580 for
such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the year ended
December 31, 2003, the Series II shares paid $39,012.
Certain officers and trustees of the Trust are 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 and
cash collateral from securities lending transactions in affiliated money market
funds. Each day the prior day's balance invested in the affiliated money market
fund is redeemed in full and a new purchase amount is submitted to invest the
current day's available cash and/or cash collateral received from securities
lending transactions. The table below shows the transactions in and earnings
from investments in affiliated money market funds for the period ended December
31, 2003.
<Table>
<Caption>
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
UNREALIZED REALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND GAIN (LOSS)
12/31/2002 AT COST SALES (DEPRECIATION) 12/31/2003 INCOME -----------
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ 60,884,509 $198,821,682 $(225,854,358) $-- $33,851,833 $ 746,339 $--
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 60,884,509 198,821,682 (225,854,358) -- $33,851,833 722,370 --
===============================================================================================================================
Subtotal $121,769,018 $397,643,364 $(451,708,716) $-- $67,703,666 $1,468,709 $--
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
<Table>
<Caption>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
UNREALIZED REALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND GAIN (LOSS)
12/31/2002 AT COST SALES (DEPRECIATION) 12/31/2003 INCOME* -----------
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $ -- $101,119,575 $ (58,002,700) $-- $ 43,116,875 $ 733 $--
- ---------------------------------------------------------------------------------------------------------------------------------
Total $121,769,018 $498,762,939 $(509,711,416) $-- $110,820,541 $1,469,442 $--
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of fees paid to the security lending agent(s) of
$30,236.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian.
For the year ended December 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $5 and reductions in custodian
fees of $273 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $278.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO 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. PREMIER EQUITY FUND
During the year ended December 31, 2003, the Fund paid legal fees of $7,926
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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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.
Effective June 26, 2003, the Fund became 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 reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the limits set by its
prospectus for borrowings. The Fund and other funds advised by AIM which were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with 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 an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities to the extent of 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, 2003, securities with an aggregate value of $41,921,760 were
on loan to brokers. The loans were secured by cash collateral of $43,116,875
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2003, the Fund received dividends on cash
collateral net of fees paid to counterparties of $733 for securities lending
transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------
Written 3,015 451,875
- -----------------------------------------------------------
Closed (1,332) (244,102)
- -----------------------------------------------------------
Exercised (1,683) (207,773)
===========================================================
End of year -- $ --
___________________________________________________________
===========================================================
</Table>
NOTE 9--FUTURES CONTRACTS
On December 31, 2003, $2,850,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -------------------------------------------------------------------------------
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- -------------------------------------------------------------------------------
S&P 500 Index 160 Mar-04/Long $44,424,000 $2,074,880
_______________________________________________________________________________
===============================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ---------------------------------------------------------------
Distributions paid from Ordinary
income $4,886,173 $6,234,450
_______________________________________________________________
===============================================================
</Table>
AIM V.I. PREMIER EQUITY FUND
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 7,680,064
- -------------------------------------------------------------
Unrealized appreciation -- investments 206,702,998
- -------------------------------------------------------------
Temporary book/tax differences (126,578)
- -------------------------------------------------------------
Capital loss carryforward (819,552,770)
- -------------------------------------------------------------
Post-October currency loss deferral (21,351)
- -------------------------------------------------------------
Shares of beneficial interest 2,376,692,742
=============================================================
Total net assets $1,771,375,105
_____________________________________________________________
=============================================================
</Table>
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 the tax deferral of losses
on wash sales and the tax recognition of unrealized gains or losses on certain
futures contracts. The tax-basis unrealized appreciation on investments amount
includes appreciation on foreign currencies of $3,319.
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 deferral of trustee compensation and
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -----------------------------------------------------------
December 31, 2009 $250,136,976
- -----------------------------------------------------------
December 31, 2010 412,231,328
- -----------------------------------------------------------
December 31, 2011 157,184,466
===========================================================
Total capital loss carryforward $819,552,770
___________________________________________________________
===========================================================
</Table>
NOTE 11--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, 2003 was $724,974,919 and $765,332,804, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $251,372,459
- -------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (44,672,780)
=============================================================
Net unrealized appreciation of investment
securities $206,699,679
_____________________________________________________________
=============================================================
Cost of investments for tax purposes is $1,608,024,159.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, on December 31, 2003, undistributed net investment income was
decreased by $17,764 and undistributed net realized gains increased by $17,764.
This reclassification had no effect on the net assets of the Fund.
AIM V.I. PREMIER EQUITY FUND
NOTE 13--SHARE INFORMATION
Changes in shares outstanding during the years ended December 31, 2003 and 2002
were as follows:
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 8,856,249 $ 156,752,191 12,952,884 $ 261,301,166
- --------------------------------------------------------------------------------------------------------------------------
Series II 760,541 13,412,567 743,703 13,539,946
==========================================================================================================================
Issued as reinvestment of dividends:
Series I 210,955 4,128,344 376,691 6,192,808
- --------------------------------------------------------------------------------------------------------------------------
Series II 2,392 46,580 2,541 41,642
==========================================================================================================================
Reacquired:
Series I (16,320,429) (285,041,801) (29,178,636) (538,858,117)
- --------------------------------------------------------------------------------------------------------------------------
Series II (319,790) (5,477,574) (105,692) (1,778,730)
==========================================================================================================================
(6,810,082) $(116,179,693) (15,208,509) $(259,561,285)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.22 $ 23.35 $ 27.30 $ 33.50 $ 26.25
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.09(a) 0.05(a) 0.06(a) 0.04(a) 0.06(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.98 (7.11) (3.50) (4.94) 7.76
=================================================================================================================================
Total from investment operations 4.07 (7.06) (3.44) (4.90) 7.82
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.06) (0.07) (0.03) (0.04) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.48) (1.26) (0.48)
=================================================================================================================================
Total distributions (0.06) (0.07) (0.51) (1.30) (0.57)
=================================================================================================================================
Net asset value, end of period $ 20.23 $ 16.22 $ 23.35 $ 27.30 $ 33.50
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 25.08% (30.26)% (12.53)% (14.68)% 29.90%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,748,961 $1,519,525 $2,558,120 $2,746,161 $2,383,367
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.85%(c) 0.85% 0.85% 0.84% 0.76%
=================================================================================================================================
Ratio of net investment income to average net assets 0.48%(c) 0.24% 0.24% 0.12% 0.20%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 50% 46% 40% 62% 62%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not reflect charges at
the separate account level which if included would reduce total returns
for all periods shown.
(c) Ratios are based on average daily net assets of $1,587,693,389.
AIM V.I. PREMIER EQUITY FUND
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
-----------------------------------
SEPTEMBER
19,
2001
(DATE
SALES
COMMENCED)
YEAR ENDED TO
DECEMBER 31, DECEMBER
----------------------- 31,
2003 2002 2001
- -------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.17 $ 23.34 $ 21.00
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04(a) 0.00(a) 0.00(a)
- -------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.97 (7.10) 2.85
=================================================================================================
Total from investment operations 4.01 (7.10) 2.85
=================================================================================================
Less distributions:
Dividends from net investment income (0.04) (0.07) (0.03)
- -------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- (0.48)
=================================================================================================
Total distributions -- (0.07) (0.51)
=================================================================================================
Net asset value, end of period $ 20.14 $ 16.17 $ 23.34
_________________________________________________________________________________________________
=================================================================================================
Total return(b) 24.83% (30.44)% 13.66%
_________________________________________________________________________________________________
=================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $22,414 $10,834 $ 687
_________________________________________________________________________________________________
=================================================================================================
Ratio of expenses to average net assets 1.10%(c) 1.10% 1.10%(d)
=================================================================================================
Ratio of net investment income (loss) to average net assets 0.23%(c) (0.01)% (0.01)%(d)
_________________________________________________________________________________________________
=================================================================================================
Portfolio turnover rate(e) 50% 46% 40%
_________________________________________________________________________________________________
=================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(c) Ratios are based on average daily net assets of $15,604,957.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
AIM V.I. PREMIER EQUITY FUND
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. PREMIER EQUITY FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Premier Equity Fund, formerly AIM V.I. Value Fund, a series of shares of
beneficial interest of AIM Variable Insurance Funds, including the schedule of
investments as of December 31, 2003, the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the
years or periods in the five year period then ended. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Premier Equity Fund as of December 31, 2003, 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 years or
periods in the five year period then ended in conformity with accounting
principles generally accepted in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. PREMIER EQUITY FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -----------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee, Chairman and Group Inc. (financial services holding
President company); and Director and Vice Chairman,
AMVESCAP PLC and Chairman of 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), and Fund
Management Company (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. and 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
- -----------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & company)
McKinzie
- -----------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -----------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss (Chairman) (registered
Group Ltd. (private investment and investment company);
management) and Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief (insurance company)
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, Discovery
Trustee Century Group, Inc. (government affairs Global Education Fund
company) and Texana Timber LP (sustainable (non-profit)
forestry company)
- -----------------------------------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. PREMIER EQUITY FUND
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Naftalis Cortland Trust, Inc.
Trustee and Frankel LLP (registered investment
company)
- --------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of None
Trustee 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 -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited
Partnership (real estate development
company)
- --------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary N/A
Senior Vice President and Chief and General Counsel, A I M Management
Legal Officer Group Inc. (financial services holding
company) and A I M Advisors, Inc.; Vice
President, A I M Capital Management, Inc.,
A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director,
Vice President and General Counsel, Fund
Management Company
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; and Senior Vice President
and General Counsel, Liberty Funds Group,
LLC
- --------------------------------------------------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and Chief Compliance N/A
Vice President Officer, A I M Advisors, Inc. and A I M
Capital Management, Inc.; and Vice
President, AIM Investment Services, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and Chief Management N/A
Vice President Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 1999 Vice President, A I M Advisors, Inc., and N/A
Vice President President, Chief Executive Officer and
Chief Investment Officer, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 100.00% is eligible for the dividends received deduction for
corporations.
AIM V.I. PREMIER EQUITY FUND
AIM V.I. SMALL CAP EQUITY FUND
DECEMBER 31, 2003
ANNUAL REPORT
AIM V.I. SMALL CAP EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
=================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=================================================
<Table>
<Caption>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. SMALL CAP EQUITY FUND
FUND POSTS DOUBLE-DIGIT GAINS YOUR FUND
FOR THE REPORTING PERIOD
We positioned the fund to take advantage
of an economic recovery. At the close of
We are pleased to send you this first economic activity, expanded at an the reporting period, the fund's three
report for AIM V. I. Small Cap Equity annualized rate of 8.2% in the third largest sector weightings were
Fund. Series I and Series II shares, quarter and 4.0% in the fourth quarter of financials, industrials and consumer
which commenced operations on August 29, 2003. The job market, while improving, discretionary, all of which tend to be
2003, posted returns of 13.94% and continued to be weak, however, as the more economically sensitive. These also
13.88%, respectively, for the reporting nation's unemployment rate stood at 5.7% were the sectors that had the most
period ended December 31, 2003. The fund at the close of the year. positive impact on fund performance in
outperformed the S&P 500(R) Index, the improving economic climate during the
frequently cited as a measure of the During the reporting period, the reporting period.
performance of the U.S. stock market in Federal Reserve kept the short-term
general, which returned 10.98% over the federal funds rate at 1.00%, its lowest Consumer staples, information
same period. It also outperformed the level since 1958. In October, the Fed technology and energy were the
Lipper Small-Cap Core Fund Index and the reported that economic expansion had weakest-performing sectors for the fund.
Russell 2000(R) Index, which returned increased and consumer spending was The fund was overweight in technology
12.36% and 12.41%, respectively, for the generally stronger, although the job compared to the S&P 500. In our opinion,
reporting period. market remained weak. this was an appropriate strategy,
considering the strong performance of
Small-cap stocks generally The S&P 500 declined in September, information technology in recent months.
outperformed large-cap stocks, enabling but rallied during the last three months However, negative stock-specific factors
the fund to outperform the large-cap of 2003. All sectors of the index posted caused the fund's information technology
oriented S&P 500. Stock selections in the gains for the final quarter of the year. holdings generally to lag those of the
consumer discretionary, health care and Materials, energy, industrials and S&P 500.
industrials sectors helped the fund consumer discretionary were among the
outperform the Russell 2000 Index. better-performing sectors while Stocks that enhanced performance
utilities, consumer staples and health included Scientific Games, which operates
MARKET CONDITIONS care were among the weakest-performing government lottery networks, and Wabash
sectors in the fourth quarter. National, a manufacturer of truck
Amid a backdrop of generally improving trailers. Scientific Games reported a 15%
economic conditions, the S&P 500 posted Small- and mid-cap stocks generally increase in revenue for the third quarter
gains for the reporting period ended outperformed largecap stocks while value of 2003. In November, the company also
December 31, 2003. The nation's gross stocks generally outperformed growth announced the completion of the
domestic product, generally considered stocks in the final quarter of 2003. acquisition of one of its major
the broadest measure of competitors. Wabash National reported a
32% increase in sales for the third
quarter of the year.
</Table>
<Table>
<Caption>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03 FUND VS. INDEXES
- ------------------------------------------------------------------------------------------------------------------------------------
1. Friedman, Billings, Ramsey Group, 1. Real Estate 6.0 Cumulative returns 8/29/03-12/31/03,
Inc.-Class A 1.2 2. Diversified Commercial Services 5.2 excluding product issuer charges
2. GrafTech International Ltd. 1.2 3. Trucking 3.2
3. Sierra Health Services, Inc. 1.1 4. Property & Casualty Insurance 2.9 Series I Shares 13.94%
4. United Surgical Partners 5. Specialty Stores 2.9 Series II Shares 13.88
International, Inc. 1.1 6. Thrifts & Mortgage Finance 2.8 S&P 500 Index 10.98
5. R.H. Donnelly Corp. 1.1 7. Biotechnology 2.4 (Broad Market Index)
6. Direct General Corp. 1.1 8. Electronic Equipment Manufacturers 2.2 Russell 2000 Index 12.41
7. Infinity Property & Casualty Corp. 1.1 9. Communications Equipment 2.2 (Style-specific Index)
8. ScanSource, Inc. 1.1 10. Restaurants 2.1 Lipper Small Cap Core Fund Index 12.36
9. Wabash National Corp. 1.1 (Peer Group Index)
10. Scientific Games Corp.-Class A 1.0
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 131
TOTAL NET ASSETS $2.8 million
====================================================================================================================================
</Table>
<Table>
========================================
PORTFOLIO MANAGEMENT TEAM
AS OF 12/31/03
MICHAEL CHAPMAN
PAUL J. RASPLICKA, LEAD MANAGER
ASSISTED BY THE SMALL/MID-CAP CORE TEAM
========================================
*Excludes money market fund holdings and is based on total net assets.
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
</Table>
<Table>
<Caption>
AIM V.I. SMALL CAP EQUITY FUND
Friedman, Billings, Ramsey Group, Current performance may be lower or ABOUT INDEXES USED IN THIS REPORT
which provides investment-banking, higher than the performance data quoted.
brokerage and asset management services Past performance cannot guarantee The unmanaged Standard & Poor's
to companies, institutions and wealthy comparable future results. Due to Composite Index of 500 Stocks (the S&P
individuals, also had a positive impact significant market volatility, results of 500) is an index of common stocks
on fund performance. The company reported an investment made today may differ frequently used as a general measure of
net income of $57 million for the third substantially from the historical U.S. stock market performance.
quarter of 2003 compared to $15.1 million performance shown. Please see your
for the same quarter of the previous financial advisor for more current The unmanaged Russell 2000 Index
year. performance. Fund performance figures are represents the performance of the stocks
historical, and they reflect fund of small-capitalization companies.
Detracting from performance were expenses, the reinvestment of
Centillium Communications, a broadband distributions and changes in net asset The unmanaged Lipper Small-Cap Core
communications technology company, and value. The fund's investment return and Fund Index represents an average of the
Intervideo, a provider of digital video principal value will fluctuate, so an performance of the 30 largest
and audio software for recording investor's shares, when redeemed, may be small-capitalization core equity funds
purposes. Although Centillium reported a worth more or less than their original tracked by Lipper, Inc., an independent
profit for the third quarter of the year, cost. mutual fund performance monitor.
it still experienced a loss for the nine
months ended September 30, 2003. AIM Variable Insurance Funds are offered A direct investment cannot be made in
InterVideo's stock declined after through insurance company separate an index. Unless otherwise indicated,
earnings were below expectations for the accounts to fund variable annuity index results include reinvested
first fiscal quarter of this newly public contracts and variable life insurance dividends, and they do not reflect sales
company. The fund no longer owns this policies, and through certain pension or charges. Performance of an index of funds
stock. retirement plans. Performance figures reflects fund expenses. Performance of a
given represent the fund and are not market index does not.
IN CLOSING intended to reflect actual variable
product values. They do not reflect sales Industry classifications used in this
During the reporting period, we remained charges, expenses and fees at the report are generally according to the
committed to the fund's capitalization separate account level. Global Industry Classification Standard,
target, selection criteria and sell which was developed by and is the
discipline. We are pleased to be able to Sales charges, expenses and fees, exclusive property and a service mark of
report the fund's positive performance which are determined by the product Morgan Stanley Capital International Inc.
for the period, and we appreciate your issuers, will vary and will lower the and Standard & Poor's.
participation in the fund. total return.
A description of the policies and
PRINCIPAL RISKS OF INVESTING IN THE FUND procedures that the Fund uses to
determine how to vote proxies relating to
Investing in small and mid-size companies portfolio securities is available without
may involve risks not associated with charge, upon request, by calling
investing in more established companies. 800-959-4246, or on the AIM Web site,
Also, small companies may have business AIMinvestments.com.
risk, significant stock price
fluctuations and illiquidity.
</Table>
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-91.29%
ADVERTISING-2.09%
ADVO, Inc. 900 $ 28,584
- --------------------------------------------------------------------
R.H. Donnelley Corp.(a) 750 29,880
====================================================================
58,464
====================================================================
AIR FREIGHT & LOGISTICS-1.68%
Pacer International, Inc.(a) 1,200 24,264
- --------------------------------------------------------------------
UTi Worldwide Inc. (United Kingdom) 600 22,758
====================================================================
47,022
====================================================================
AIRLINES-0.38%
AirTran Holdings, Inc.(a) 900 10,710
====================================================================
APPAREL RETAIL-1.64%
Cache, Inc.(a) 1,200 24,996
- --------------------------------------------------------------------
Stage Stores, Inc.(a) 750 20,925
====================================================================
45,921
====================================================================
APPLICATION SOFTWARE-0.93%
Open Solutions Inc.(a) 200 3,514
- --------------------------------------------------------------------
ScanSoft, Inc.(a) 1,700 9,044
- --------------------------------------------------------------------
Verint Systems Inc.(a) 600 13,536
====================================================================
26,094
====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.97%
Affiliated Managers Group, Inc.(a) 400 27,836
- --------------------------------------------------------------------
MCG Capital Corp. 1,400 27,300
====================================================================
55,136
====================================================================
AUTO PARTS & EQUIPMENT-1.03%
American Axle & Manufacturing Holdings,
Inc.(a) 400 16,168
- --------------------------------------------------------------------
LKQ Corp.(a) 700 12,565
====================================================================
28,733
====================================================================
BIOTECHNOLOGY-2.36%
OraSure Technologies, Inc.(a) 1,300 10,348
- --------------------------------------------------------------------
QLT Inc. (Canada)(a) 800 15,080
- --------------------------------------------------------------------
Serologicals Corp.(a) 1,500 27,900
- --------------------------------------------------------------------
United Therapeutics Corp.(a) 550 12,622
====================================================================
65,950
====================================================================
BROADCASTING & CABLE TV-0.94%
Cumulus Media Inc.-Class A(a) 1,200 26,400
====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
BUILDING PRODUCTS-1.56%
ElkCorp. 800 $ 21,360
- --------------------------------------------------------------------
Griffon Corp.(a) 1,100 22,286
====================================================================
43,646
====================================================================
CASINOS & GAMING-1.03%
Scientific Games Corp.-Class A(a) 1,700 28,917
====================================================================
COMMUNICATIONS EQUIPMENT-2.19%
Avocent Corp.(a) 700 25,564
- --------------------------------------------------------------------
Centillium Communications, Inc.(a) 1,800 10,134
- --------------------------------------------------------------------
Inter-Tel, Inc. 500 12,490
- --------------------------------------------------------------------
Plantronics, Inc.(a) 400 13,060
====================================================================
61,248
====================================================================
COMPUTER HARDWARE-0.52%
Pinnacle Systems, Inc.(a) 1,700 14,501
====================================================================
COMPUTER STORAGE & PERIPHERALS-0.92%
Overland Storage, Inc.(a) 500 9,400
- --------------------------------------------------------------------
Synaptics Inc.(a) 1,100 16,478
====================================================================
25,878
====================================================================
CONSTRUCTION & ENGINEERING-0.72%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 700 20,230
====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.05%
Wabash National Corp.(a) 1,000 29,300
====================================================================
CONSUMER FINANCE-1.29%
AmeriCredit Corp.(a) 800 12,744
- --------------------------------------------------------------------
Rewards Network Inc.(a) 2,200 23,452
====================================================================
36,196
====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.87%
Alliance Data Systems Corp.(a) 700 19,376
- --------------------------------------------------------------------
Certegy Inc. 400 13,120
- --------------------------------------------------------------------
Intrado Inc.(a) 900 19,755
====================================================================
52,251
====================================================================
DIVERSIFIED COMMERCIAL SERVICES-6.16%
Corrections Corp. of America(a) 950 27,388
- --------------------------------------------------------------------
Integrated Alarm Services Group, Inc.(a) 2,600 22,100
- --------------------------------------------------------------------
LECG Corp.(a) 700 16,023
- --------------------------------------------------------------------
Navigant Consulting, Inc.(a) 1,300 24,518
- --------------------------------------------------------------------
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-(CONTINUED)
NCO Group, Inc.(a) 800 $ 18,216
- --------------------------------------------------------------------
Sotheby's Holdings, Inc.-Class A(a) 1,600 21,856
- --------------------------------------------------------------------
Tetra Tech, Inc.(a) 700 17,402
- --------------------------------------------------------------------
United Rentals, Inc.(a) 1,300 25,038
====================================================================
172,541
====================================================================
DIVERSIFIED METALS & MINING-1.59%
Compass Minerals International, Inc.(a) 1,400 19,992
- --------------------------------------------------------------------
CONSOL Energy Inc. (Acquired 9/17/2003; Cost
$8,910)(a)(b)(c) 500 11,655
- --------------------------------------------------------------------
CONSOL Energy Inc. 500 12,950
====================================================================
44,597
====================================================================
DRUG RETAIL-0.64%
NeighborCare, Inc.(a) 900 17,775
====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.22%
Aeroflex Inc.(a) 1,900 22,211
- --------------------------------------------------------------------
Amphenol Corp.-Class A(a) 300 19,179
- --------------------------------------------------------------------
Varian Inc.(a) 500 20,865
====================================================================
62,255
====================================================================
ENVIRONMENTAL SERVICES-0.83%
Casella Waste Systems, Inc.-Class A(a) 1,700 23,273
====================================================================
FOOTWEAR-0.42%
Reebok International Ltd. 300 11,796
====================================================================
GENERAL MERCHANDISE STORES-0.33%
Fred's, Inc. 300 9,294
====================================================================
HEALTH CARE EQUIPMENT-0.45%
Wilson Greatbatch Technologies, Inc.(a) 300 12,681
====================================================================
HEALTH CARE FACILITIES-2.07%
United Surgical Partners International,
Inc.(a) 900 30,132
- --------------------------------------------------------------------
VCA Antech, Inc.(a) 900 27,882
====================================================================
58,014
====================================================================
HEALTH CARE SERVICES-0.69%
US Oncology, Inc.(a) 1,800 19,368
====================================================================
HEALTH CARE SUPPLIES-1.88%
Align Technology, Inc.(a) 800 13,216
- --------------------------------------------------------------------
PolyMedica Corp. 500 13,155
- --------------------------------------------------------------------
Sola International Inc.(a) 1,400 26,320
====================================================================
52,691
====================================================================
HOME FURNISHINGS-0.89%
Tempur-Pedic International Inc.(a) 1,600 24,800
====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-0.42%
Kerzner International Ltd. (Bahamas)(a) 300 $ 11,688
====================================================================
HOUSEHOLD PRODUCTS-0.08%
Rayovac Corp.(a) 100 2,095
====================================================================
HOUSEWARES & SPECIALTIES-1.76%
Jarden Corp.(a) 1,000 27,340
- --------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 800 21,864
====================================================================
49,204
====================================================================
INDUSTRIAL GASES-0.61%
Airgas, Inc. 800 17,184
====================================================================
INDUSTRIAL MACHINERY-0.92%
Kennametal Inc. 650 25,837
====================================================================
INTERNET SOFTWARE & SERVICES-1.34%
Digital Insight Corp.(a) 500 12,450
- --------------------------------------------------------------------
United Online, Inc.(a) 1,500 25,185
====================================================================
37,635
====================================================================
INVESTMENT BANKING & BROKERAGE-0.71%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $20,000)(a)(b)(c) 200 20,000
====================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.26%
iShares Nasdaq Biotechnology Index Fund(a) 100 7,195
====================================================================
IT CONSULTING & OTHER SERVICES-0.64%
DigitalNet Holdings, Inc.(a) 400 7,800
- --------------------------------------------------------------------
ManTech International Corp.-Class A(a) 400 9,980
====================================================================
17,780
====================================================================
LIFE & HEALTH INSURANCE-0.80%
American Medical Security Group, Inc.(a) 1,000 22,420
====================================================================
MANAGED HEALTH CARE-1.08%
Sierra Health Services, Inc.(a) 1,100 30,195
====================================================================
MULTI-LINE INSURANCE-0.86%
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 11/21/03-12/30/03; Cost
$21,964)(a)(c) 2,100 24,150
====================================================================
OFFICE SERVICES & SUPPLIES-1.10%
Danka Business Systems PLC-ADR (United
Kingdom)(a) 2,300 10,120
- --------------------------------------------------------------------
Moore Wallace Inc. (Canada)(a) 1,100 20,603
====================================================================
30,723
====================================================================
OIL & GAS EQUIPMENT & SERVICES-1.78%
FMC Technologies, Inc.(a) 600 13,980
- --------------------------------------------------------------------
Key Energy Services, Inc.(a) 1,750 18,043
- --------------------------------------------------------------------
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-(CONTINUED)
W-H Energy Services, Inc.(a) 1,100 $ 17,820
====================================================================
49,843
====================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.46%
Comstock Resources, Inc.(a) 700 13,510
- --------------------------------------------------------------------
Southwestern Energy Co.(a) 1,000 23,900
- --------------------------------------------------------------------
Ultra Petroleum Corp. (Canada)(a) 550 13,541
- --------------------------------------------------------------------
Westport Resources Corp.(a) 600 17,916
====================================================================
68,867
====================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.44%
Golar LNG Ltd. (Bermuda)(a) 860 12,310
====================================================================
PACKAGED FOODS & MEATS-1.01%
Flowers Foods, Inc. 1,100 28,380
====================================================================
PERSONAL PRODUCTS-0.96%
NBTY, Inc.(a) 1,000 26,860
====================================================================
PHARMACEUTICALS-1.21%
aaiPharma Inc.(a) 600 15,072
- --------------------------------------------------------------------
Axcan Pharma Inc. (Canada)(a) 1,200 18,780
====================================================================
33,852
====================================================================
PROPERTY & CASUALTY INSURANCE-2.90%
Direct General Corp. 900 29,790
- --------------------------------------------------------------------
Infinity Property & Casualty Corp. 900 29,745
- --------------------------------------------------------------------
Navigators Group, Inc. (The)(a) 700 21,609
====================================================================
81,144
====================================================================
PUBLISHING-0.93%
Journal Communications, Inc.-Class A 1,400 25,942
====================================================================
RAILROADS-0.90%
Genesee & Wyoming Inc.-Class A(a) 800 25,200
====================================================================
REAL ESTATE-5.95%
American Financial Realty Trust 1,300 22,165
- --------------------------------------------------------------------
American Home Mortgage Investment Corp. 600 13,506
- --------------------------------------------------------------------
Ashford Hospitality Trust(a) 2,100 19,719
- --------------------------------------------------------------------
Fieldstone Investment Corp. (Acquired
11/10/03-12/23/03; Cost $22,179(a)(c) 1,400 23,450
- --------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc.-Class
A 1,500 34,620
- --------------------------------------------------------------------
Highland Hospitality Corp.(a) 2,300 25,070
- --------------------------------------------------------------------
Luminent Mortgage Capital, Inc.(a) 2,000 28,200
====================================================================
166,730
====================================================================
REGIONAL BANKS-0.41%
Texas Capital Bancshares, Inc.(a) 800 11,570
====================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
RESTAURANTS-2.11%
Landry's Restaurants, Inc. 600 $ 15,432
- --------------------------------------------------------------------
Ruby Tuesday, Inc. 600 17,094
- --------------------------------------------------------------------
Volume Services America Holdings, Inc.-IDS(d) 1,600 26,640
====================================================================
59,166
====================================================================
SEMICONDUCTOR EQUIPMENT-0.47%
Axcelis Technologies, Inc.(a) 1,300 13,286
====================================================================
SEMICONDUCTORS-2.00%
AMIS Holdings, Inc.(a) 1,200 21,936
- --------------------------------------------------------------------
DSP Group, Inc.(a) 800 19,928
- --------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 500 14,245
====================================================================
56,109
====================================================================
SPECIALIZED FINANCE-1.00%
GATX Corp. 1,000 27,980
====================================================================
SPECIALTY CHEMICALS-1.83%
Great Lakes Chemical Corp. 900 24,471
- --------------------------------------------------------------------
Minerals Technologies Inc. 450 26,663
====================================================================
51,134
====================================================================
SPECIALTY STORES-2.87%
Advance Auto Parts, Inc.(a) 200 16,280
- --------------------------------------------------------------------
Pep Boys (The)-Manny, Moe & Jack 1,200 27,444
- --------------------------------------------------------------------
Select Comfort Corp.(a) 800 19,808
- --------------------------------------------------------------------
West Marine, Inc.(a) 600 16,686
====================================================================
80,218
====================================================================
STEEL-1.21%
GrafTech International Ltd.(a) 2,500 33,750
====================================================================
TECHNOLOGY DISTRIBUTORS-1.97%
Global Imaging Systems, Inc.(a) 800 25,400
- --------------------------------------------------------------------
ScanSource, Inc.(a) 650 29,653
====================================================================
55,053
====================================================================
THRIFTS & MORTGAGE FINANCE-2.77%
First Niagara Financial Group, Inc. 1,400 20,874
- --------------------------------------------------------------------
Franklin Bank Corp.(a) 1,100 20,900
- --------------------------------------------------------------------
Jefferson Bancshares, Inc. 900 12,411
- --------------------------------------------------------------------
Saxon Capital, Inc.(a) 900 18,855
- --------------------------------------------------------------------
TierOne Corp.(a) 200 4,592
====================================================================
77,632
====================================================================
TRUCKING-3.19%
Dollar Thrifty Automotive Group, Inc.(a) 550 14,267
- --------------------------------------------------------------------
Landstar System, Inc.(a) 650 24,726
- --------------------------------------------------------------------
Overnite Corp.(a) 1,100 25,025
- --------------------------------------------------------------------
</Table>
AIM V.I. SMALL CAP EQUITY FUND
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
TRUCKING-(CONTINUED)
Quality Distribution Inc.(a) 1,300 $ 25,415
====================================================================
89,433
====================================================================
Total Common Stocks & Other Equity
Interests (Cost $2,363,446) 2,556,247
====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- --------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-15.96%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-15.96%
Unsec. Disc. Notes, 0.75%, 01/02/04 (Cost
$446,991)(e) $447,000 $ 446,991
=====================================================================
TOTAL INVESTMENTS-107.25% (Cost $2,810,437) 3,003,238
=====================================================================
OTHER ASSETS LESS LIABILITIES-(7.25%) (202,946)
=====================================================================
NET ASSETS-100.00% $2,800,292
_____________________________________________________________________
=====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Disc. - Discounted
IDS - Income Deposit Securities
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(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 12/31/03 was $79,255,
which represented 2.83% of the Fund's net assets. These securities are
considered to be illiquid.
(d) Consists of more than one class of securities traded together as a unit.
(e) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
See accompanying notes which are an integral part of the financial statements.
AIM V.I. SMALL CAP EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost $2,810,437) $3,003,238
- ------------------------------------------------------------
Cash 3,321
- ------------------------------------------------------------
Foreign currencies, at value (cost $2,875) 2,914
- ------------------------------------------------------------
Receivables for:
Investments sold 9,840
- ------------------------------------------------------------
Fund shares sold 64,009
- ------------------------------------------------------------
Dividends 1,730
- ------------------------------------------------------------
Due from advisor 49,325
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 1,076
============================================================
Total assets 3,135,453
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 307,956
- ------------------------------------------------------------
Fund shares reacquired 6,200
- ------------------------------------------------------------
Deferred compensation and retirement plans 1,076
- ------------------------------------------------------------
Accrued administrative services fees 925
- ------------------------------------------------------------
Accrued distribution fees -- Series II 81
- ------------------------------------------------------------
Accrued transfer agent fees 108
- ------------------------------------------------------------
Accrued operating expenses 18,815
============================================================
Total liabilities 335,161
============================================================
Net assets applicable to shares outstanding $2,800,292
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,611,190
- ------------------------------------------------------------
Undistributed net investment income (loss) (342)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (3,367)
- ------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 192,811
============================================================
$2,800,292
____________________________________________________________
============================================================
NET ASSETS:
Series I $2,230,955
____________________________________________________________
============================================================
Series II $ 569,337
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 196,058
____________________________________________________________
============================================================
Series II 50,038
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 11.38
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 11.38
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the period August 29, 2003 (date operations commenced) to December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $10) $ 3,483
- -----------------------------------------------------------
Interest 487
===========================================================
Total investment income 3,970
===========================================================
EXPENSES:
Advisory fees 3,921
- -----------------------------------------------------------
Administrative services fees 18,048
- -----------------------------------------------------------
Custodian fees 11,312
- -----------------------------------------------------------
Distribution fees -- Series II 454
- -----------------------------------------------------------
Transfer agent fees 216
- -----------------------------------------------------------
Trustees' fees 3,534
- -----------------------------------------------------------
Reports to shareholders 7,659
- -----------------------------------------------------------
Professional fees 14,585
- -----------------------------------------------------------
Other 43
===========================================================
Total expenses 59,772
===========================================================
Less: Fees waived, expenses reimbursed and
expense offset arrangements (53,522)
===========================================================
Net expenses 6,250
===========================================================
Net investment income (loss) (2,280)
===========================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (2,173)
- -----------------------------------------------------------
Foreign currencies (12)
===========================================================
(2,185)
===========================================================
Change in net unrealized appreciation of:
Investment securities 192,801
- -----------------------------------------------------------
Foreign currencies 10
===========================================================
192,811
===========================================================
Net gain from investment securities and foreign
currencies 190,626
===========================================================
Net increase in net assets resulting from
operations $188,346
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. SMALL CAP EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period August 29, 2003 (Date operations commenced) to December 31, 2003
<Table>
<Caption>
2003
- ------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,280)
- ------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (2,185)
- ------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 192,811
========================================================================
Net increase in net assets resulting from operations 188,346
========================================================================
Distributions to shareholders from net investment income:
Series I (767)
- ------------------------------------------------------------------------
Series II (45)
========================================================================
Total distributions from net investment income (812)
========================================================================
Distributions to shareholders from net realized gains:
Series I (865)
- ------------------------------------------------------------------------
Series II (355)
========================================================================
Total distributions from net realized gains (1,220)
========================================================================
Decrease in net assets resulting from distributions (2,032)
========================================================================
Share transactions-net:
Series I 2,113,568
- ------------------------------------------------------------------------
Series II 500,410
========================================================================
Net increase in net assets resulting from share
transactions 2,613,978
========================================================================
Net increase in net assets 2,800,292
========================================================================
NET ASSETS:
Beginning of year --
========================================================================
End of year (including undistributed net investment income
(loss) of $(342) for 2003) $2,800,292
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
AIM V.I. SMALL CAP EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Small Cap 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
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. 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. The Fund commenced operations on August
29, 2003.
The Fund's primary investment objective is to achieve long-term growth of
capital. Each company listed in the Schedule of Investments is organized in the
United States of America unless otherwise noted.
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. Debt obligations
(including convertible bonds) are valued on the basis of prices provided by
an independent pricing service. Prices provided by the pricing service may
be determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, developments related to special securities, dividend rate,
yield, quality, type of issue, coupon rate, maturity, individual trading
characteristics and other market data. 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. Securities for which market
quotations are not readily available or are questionable are valued at fair
value as determined in good faith by or under the supervision of the
Trust's officers in a manner specifically authorized 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.
Short-term obligations having 60 days or less to maturity and commercial
paper are valued at amortized cost which approximates market value. 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").
Foreign securities are converted into U.S. dollar amounts using 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 a development/event is so significant such that there is a reasonably
high degree of certainty as to both the effect and the degree of effect
that the development/event has actually caused that closing price to no
longer reflect actual value, the closing prices, as determined at the close
of the applicable foreign market, may be adjusted to reflect the fair value
of the affected foreign securities as of the close of the NYSE as
determined in good faith by or under the supervision of the Board of
Trustees. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an 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.
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.
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 gains,
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
AIM V.I. SMALL CAP EQUITY FUND
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. Any capital loss carryforwards listed are reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
E. FOREIGN CURRENCY TRANSLATIONS -- Portfolio securities and other assets and
liabilities denominated in foreign currencies are translated into U.S.
dollar amounts at date of valuation. Purchases and sales of portfolio
securities and income items denominated in foreign currencies are
translated into U.S. dollar amounts on the respective dates of such
transactions. The Fund does not separately account for 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 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.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. 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.
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 AIM at the annual rate of 0.85% of the Fund's
average daily net assets. AIM has contractually agreed to waive fees and/or
reimburse expenses of Series I and Series II shares to the extent necessary to
limit the expenses (excluding Rule 12b-1 plan fees, if any, interest, taxes,
fund merger and reorganization expenses, extraordinary items, including other
items designated as such by the Board of Trustees and increases in expenses due
to expense offset arrangements, if any) of each Series to 1.30% through December
31, 2003. 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.
For the period August 29, 2003 (date operations commenced) through December 31,
2003, AIM waived fees of $3,921 and reimbursed expenses of $49,325.
Pursuant to a master administrative services agreement with AIM, the Fund
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. For
the period August 29, 2003 (date operations commenced) through December 31,
2003, the Fund paid AIM $18,048 for such services, of which AIM retained $17,123
for services provided by AIM.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the period August 29, 2003 (date operations commenced) through
December 31, 2003, AISI retained $108 for such services.
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 furnish
continuing personal shareholder services to customers who purchase and own
Series II shares of the Fund. AIM Distributors has agreed to reimburse the
Fund's Rule 12b-1 distribution plan fees to the extent necessary to limit total
expenses of Series II shares to 1.45%. Pursuant to the Plan, for the period
August 29, 2003 (date operations commenced) through December 31, 2003, the
Series II shares paid $273 after AIM Distributors waived Plan fees of $181.
Certain officers and trustees of the Trust are officers of AIM, AISI and/or
AIM Distributors.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of custodian
credits resulting from periodic overnight cash balances at the custodian. For
the period August 29, 2003 (date operations commenced) through December 31,
2003, the Fund received reductions in custodian fees of $95 under an expense
offset arrangement which resulted in a reduction of the Fund's total expenses of
$95.
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. The Trustees deferring compensation have the
option to select various AIM and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
AIM V.I. SMALL CAP EQUITY 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.
During the period August 29, 2003 (date operations commenced) through
December 31, 2003, the Fund paid legal fees of $624 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
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO 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. Under certain circumstances, a loan will be secured
by collateral. 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, 2003, 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 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 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 period August 29, 2003 (date
operations commenced) through December 31, 2003 was as follows:
<Table>
<Caption>
2003
- -----------------------------------------------------------
Distributions paid from ordinary income $2,032
___________________________________________________________
===========================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 806
- ------------------------------------------------------------
Unrealized appreciation -- investments 191,890
- ------------------------------------------------------------
Temporary book/tax differences (1,131)
- ------------------------------------------------------------
Post-October capital loss deferral (2,445)
- ------------------------------------------------------------
Post-October currency loss deferral (18)
- ------------------------------------------------------------
Shares of beneficial interest 2,611,190
============================================================
Total net assets $2,800,292
____________________________________________________________
============================================================
</Table>
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 the tax deferral of losses
on wash sales. The tax-basis unrealized appreciation on investments amount
includes appreciation on foreign currencies of $10.
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 deferral of trustee compensation.
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 period August
29, 2003 (date operations commenced) through December 31, 2003 was $2,741,525
and $375,905, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of investment
securities $211,421
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of investment
securities (19,541)
===========================================================
Net unrealized appreciation of investment
securities $191,880
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $2,811,358.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of nondeductible stock
issuance costs and foreign currency transactions, on December 31, 2003,
undistributed net investment income was increased by $2,750, undistributed net
realized gains increased by $38 and shares of beneficial interest decreased by
$2,788. This reclassification had no effect on the net assets of the Fund.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 9--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------
AUGUST 29, 3003
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2003
-----------------------
SHARES AMOUNT
- -------------------------------------------------------------------------------------
Sold:
Series I 199,409 $2,150,468
- -------------------------------------------------------------------------------------
Series II 50,001 500,010
=====================================================================================
Issued as reinvestment of dividends:
Series I 148 1,633
- -------------------------------------------------------------------------------------
Series II 37 400
=====================================================================================
Reacquired:
Series I (3,499) (38,533)
=====================================================================================
246,096 $2,613,978
_____________________________________________________________________________________
=====================================================================================
</Table>
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding during the period August 29, 2003 (date operations commenced)
through December 31, 2003.
<Table>
<Caption>
SERIES I
----------------
AUGUST 29,
2003
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2003
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.41
==============================================================================
Total from investment operations 1.40
==============================================================================
Less distributions:
Dividends from net investment income (0.01)
- ------------------------------------------------------------------------------
Distributions from net realized gains (0.01)
==============================================================================
Total distributions (0.02)
==============================================================================
Net asset value, end of period $11.38
______________________________________________________________________________
==============================================================================
Total return(a) 13.94%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,231
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.32%(b)
- ------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 12.86%(b)
==============================================================================
Ratio of net investment income (loss) to average net assets (0.44)%
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(c) 26%
______________________________________________________________________________
==============================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(b) Ratios are annualized and based on average daily net assets of $817,163.
(c) Not annualized for periods less than one year.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
SERIES II
----------------
AUGUST 29,
2003
(DATE OPERATIONS
COMMENCED) TO
DECEMBER 31,
2003
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.41
==============================================================================
Total from investment operations 1.39
==============================================================================
Less distributions:
Dividends from net investment income (0.00)
- ------------------------------------------------------------------------------
Distributions from net realized gains (0.01)
==============================================================================
Total distributions (0.01)
==============================================================================
Net asset value, end of period $11.38
______________________________________________________________________________
==============================================================================
Total return(a) 13.88%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 569
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%(b)
- ------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 13.11%(b)
==============================================================================
Ratio of net investment income (loss) to average net assets (0.59)%
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(c) 26%
______________________________________________________________________________
==============================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year. Total returns do not reflect charges at the
separate account level which if included would reduce total returns for
all periods shown.
(b) Ratios are annualized and based on average daily net assets of $529,703.
(c) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
AIM V.I. SMALL CAP EQUITY FUND
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such 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 the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO 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.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
AIM V.I. SMALL CAP EQUITY FUND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
AIM Variable Insurance Funds
We have audited the accompanying statement of assets and liabilities of AIM V.I.
Small Cap Equity Fund, a series of shares of beneficial interest of AIM Variable
Insurance Funds, including the schedule of investments as of December 31, 2003,
the related statement of operations, the statement of changes in net assets, and
the financial highlights for the period August 29, 2003 (commencement of
operations) through December 31, 2003. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
V.I. Small Cap Growth Fund as of December 31, 2003, the results of its
operations, the changes in its net assets, and the financial highlights for the
period August 29, 2003 (commencement of operations) through December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
January 30, 2004
AIM V.I. SMALL CAP EQUITY FUND
TRUSTEES AND OFFICERS
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -----------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, None
Trustee, Chairman and A I M Management Group
President Inc. (financial
services holding
company); and Director
and Vice Chairman,
AMVESCAP PLC and
Chairman of 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. 2003 Director, President and None
Williamson(2) -- 1951 Chief Executive
Trustee and Executive Vice Officer, A I M
President 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), and
Fund Management Company
(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. and 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
- -----------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Badgley Funds, Inc.
Trustee Baker & McKenzie (registered
investment company)
Formerly: Partner, law
firm of Baker &
McKenzie
- -----------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett ACE Limited
Trustee Technology Associates (insurance company);
(technology consulting and Captaris, Inc.
company) (unified messaging
provider)
- -----------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of Cortland Trust, Inc.
Trustee public and private (Chairman)
business corporations, (registered
including the Boss investment company);
Group Ltd. (private Annuity and Life Re
investment and (Holdings), Ltd.
management) and (insurance company)
Magellan 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 Administaff,
Trustee Officer, Twenty First Discovery Global
Century Group, Inc. Education Fund
(government affairs (non-profit)
company) and Texana
Timber LP (sustainable
forestry company)
- -----------------------------------------------------------------------------------------------
</Table>
(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.
(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.
AIM V.I. SMALL CAP EQUITY FUND
Trustees and Officers (continued)
As of January 1, 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 104 portfolios in the AIM and INVESCO Funds complex except for Mr.
Williamson who oversees 117 portfolios in the AIM and INVESCO 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.
<Table>
<Caption>
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 Cortland Trust, Inc.
Trustee Kramer Levin Naftalis (registered
and Frankel LLP investment company)
- ----------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief None
Trustee Executive Officer, YWCA
of the USA
- ----------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of None
Trustee Pennock & Cooper
- ----------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice None
Trustee President, Development
and Operations Hines
Interests Limited
Partnership (real
estate development
company)
- ----------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice N/A
Senior Vice President and President, Secretary
Chief Legal Officer and General Counsel,
A I M Management Group
Inc. (financial
services holding
company) and A I M
Advisors, Inc.; Vice
President, A I M
Capital Management,
Inc., A I M
Distributors, Inc. and
AIM Investment
Services, Inc.; and
Director, Vice
President and General
Counsel, Fund
Management Company
Formerly: Senior Vice
President and General
Counsel, Liberty
Financial Companies,
Inc.; and Senior Vice
President and General
Counsel, Liberty Funds
Group, LLC
- ----------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1993 Managing Director, N/A
Vice President Chief Fixed Income
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 N/A
Vice President Director of Money
Market Research and
Special Projects, A I M
Capital Management,
Inc.; and Vice
President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 1993 Vice President and N/A
Vice President Chief Compliance
Officer, A I M
Advisors, Inc. and
A I M Capital
Management, Inc.; and
Vice President, AIM
Investment Services,
Inc.
- ----------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund N/A
Vice President and Treasurer Treasurer, A I M
Advisors, Inc.; Senior
Vice President, AIM
Investment Services,
Inc.; and Vice
President, A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Managing Director and N/A
Vice President Chief 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 -- 1940 1999 Vice President, A I M N/A
Vice President Advisors, Inc., and
President, Chief
Executive Officer and
Chief Investment
Officer, A I M Capital
Management, Inc.
- ----------------------------------------------------------------------------------------------------
</Table>
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 1.800.347.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Tait, Weller & Baker
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1818 Market Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2400
Houston, TX 77046-1173 Houston, TX 77046-1173 Philadelphia, PA 19103
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Foley & Lardner Kramer, Levin, Naftalis & AIM Investment Services, Inc. State Street Bank and
3000 K N.W., Suite 500 Frankel LLP P.O. Box 4739 Trust Company
Washington, D.C. 20007 919 Third Avenue Houston, TX 77210-4739 225 Franklin Street
New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 37.88% is eligible for the dividends received deduction for
corporations.
AIM V.I. SMALL CAP EQUITY FUND
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Registrant had adopted a
code of ethics (the "Code") that applies to the Registrant's principal executive
office ("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. Ms. Mathai-Davis is "independent" within
the meaning of that term used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY TWB RELATED TO THE TRUST
TWB billed the Trust aggregate fees for services rendered to the Trust
for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees Percentage of Fees
Billed Applicable Billed Applicable
to Non-Audit to Non-Audit
Services Provided Services Provided
Fees Billed for in 2003 Pursuant to in 2002 Pursuant to
Services Rendered Waiver of Fees Billed for Waiver of
to the Trust in Pre-Approval Services Rendered to Pre-Approval
2003 Requirement(1)(2) the Trust in 2002 Requirement(1)(2)
----------------- ------------------- -------------------- -------------------
Audit Fees $233,000 N/A $209,200 N/A
Audit-Related Fees $ 0 0% $ 0 N/A
Tax Fees(3) $ 40,000 0% $ 36,000 N/A
All Other Fees $ 0 0% $ 0 N/A
-------- --------
Total Fees $273,000 $245,200 N/A
</Table>
TWB billed the Trust aggregate non-audit fees of $40,000 for the fiscal year
ended 2003, and $36,000 for the fiscal year ended 2002, for non-audit services
rendered to the Trust.
- ---------
(1) Prior to May 6, 2003, the Trust'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.
(2) 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 Trust 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
billed to the Trust during a fiscal year; and (iii) such services are
promptly approved by the Trust's Audit Committee prior to the
completion of the audit by the Audit Committee.
(3) Tax Fees for the fiscal year ended December 31, 2003 includes fees
billed for reviewing tax returns. Tax Fees for the fiscal year ended
December 31, 2002 includes fees billed for reviewing tax returns.
FEES BILLED BY TWB RELATED TO AIM AND AIM AFFILIATES
TWB billed AIM and AIM Affiliates aggregate fees for pre-approved
non-audit services rendered to AIM and AIM Affiliates for the last two fiscal
years as follows:
1
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Non-Audit Services
Rendered to AIM and Percentage of Fees Rendered to AIM and Percentage of Fees
AIM Affiliates in Billed Applicable to AIM Affiliates in Billed Applicable to
2003 That Were Non-Audit Services 2002 That Were Non-Audit Services
Required Provided in 2003 Required Provided in 2002
to be Pre-Approved Pursuant to Waiver of to be Pre-Approved Pursuant to Waiver of
by the Trust's Pre-Approval by the Trust's Pre-Approval
Audit Committee(1) Requirement(2)(3) Audit Committee(1) Requirement(2)(3)
------------------- --------------------- ------------------- ---------------------
Audit-Related Fees $0 0% N/A N/A
Tax Fees $0 0% N/A N/A
All Other Fees $0 0% N/A N/A
--------
Total Fees $0 N/A N/A
</Table>
TWB billed AIM and AIM Affiliates aggregate non-audit fees of $0 for the fiscal
year ended 2003, and $0 for the fiscal year ended 2002, 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 any entity controlling, controlled by or
under common control with INVESCO that provides ongoing services to the Trust
("AIM Affiliates"), that were not required to be pre-approved pursuant to SEC
regulations is compatible with maintaining TWB's independence. The Audit
Committee determined that the provision of such services is compatible with TWB
maintaining independence with respect the Trust.
- ---------
(1) Prior to May 6, 2003, the Trust'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.
(2) Prior to May 6, 2003, the Trust'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) 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 Trust 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
billed to the Trust during a fiscal year; and (iii) such services are
promptly approved by the Trust's Audit Committee prior to the
completion of the audit by the Audit Committee.
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")
AMENDED NOVEMBER 6, 2003
I. 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 Committee pre-approves the
audit and non-audit services provided to the Funds by the 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
2
("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 Committee ("general pre-approval") or require
the specific pre-approval of the Audit Committee ("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 Committee. Additionally, any proposed services exceeding general
pre-approved cost levels or established amounts will also require specific
pre-approval by the Audit Committee.
The Audit Committee will annually review and pre-approve the services that may
be provided by the 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
Committee considers a different period and states otherwise. The Audit Committee
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 Committee in fulfilling its responsibilities.
II. DELEGATION
The Audit Committee 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-scheduled meeting.
III. AUDIT SERVICES
The annual audit services engagement terms and fees will be subject to specific
pre-approval of the Audit Committee. 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 Committee 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.
IV. GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committee 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 Committee believes 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
3
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.
ALL OTHER SERVICES
The Audit Committee 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.
V. SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committee may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committee believes 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.
VI. PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval fee levels or established amounts for services to be provided by
the Auditor under general pre-approval policies will be set annually by the
Audit Committee. Any proposed services exceeding these levels or amounts will
require specific pre-approval by the Audit Committee. 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.
VII. PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committee 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 where possible 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 Committee 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 Committee. The Audit Committee will be informed at the
next regularly scheduled Audit Committee meeting of any such services rendered
by the Auditor.
Each request to provide services that require specific approval by the Audit
Committee shall be submitted to the Audit Committee 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.
4
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committee 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 Committee has 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
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
o 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. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) As of December 18, 2003, an evaluation was performed under the
supervision and with the participation of the officers of INVESCO
Variable Investment Funds, Inc. (the "Registrant"), including the
Principal Executive Officer (PEO") and Principal Financial Officer
("PFO"), to
5
assess the effectiveness of the Registrant's disclosure controls and
procedures, as that term in 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 18, 2003, the Registrant's disclosure
controls and procedures were reasonably designed so as 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 Registrant's last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
However, changes in certain other controls involving fair value pricing
have been implemented which could affect the Registrant.
ITEM 10. EXHIBITS. CODE OF ETHICS FOR SENIOR OFFICERS.
(a)(1) Code of Ethics.
(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2 under the
Investment Company Act of 1940.
(b) Certification of principal executive officer and principal
financial officer as required by Section 906 of the
Sarbanes-Oxley Act of 2002.
6
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, Inc.
----------------------------------
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham
Principal Executive Officer
Date: February 23, 2004
---------------------------
Pursuant to the requirements of the Securities 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 23, 2004
---------------------------
By: /s/ SIDNEY M. DILGREN
---------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: February 23, 2004
---------------------------
EXHIBIT INDEX
10a Code of Ethics
(b)(1) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of
1940. Certification of principal executive officer and principal
financial officer as required by Section 906 of the Sarbanes-Oxley Act
of 2002.